Around the world, most developing countries face two crises: climate change and debt. Climate change is leading to more extreme weather events everywhere, but it particularly threatens the lives and livelihoods of millions of people in developing countries: rising sea levels generated by global warming are an existential threat to island nations and coastal communities, and developing countries are particularly vulnerable because their economies often revolve around climate-sensitive sectors, such as agriculture and tourism. Moreover, developing countries typically lack key technologies and financial resources that could help them become more resilient to climate change and its impacts.

However, the debt crisis for developing countries is no less existential: exacerbated by the slowdown of global growth, high interest rates, and reduced investment, developing countries owe approximately $9 trillion in external debt and the poorest among them spend over 10 percent of their export revenues on debt servicing. Governments representing deeply indebted nations are often unable to invest in health care, education, and other services, which, in turn, threatens their very political survival.

With all this in mind, academics and policy makers have called for the international community to prioritize debt-for-climate swaps, an initiative through which a nation’s debt is forgiven in exchange for investment in climate change adaptation and mitigation, thereby addressing both crises at once. In the simplest terms, a debtor nation will agree to stop making payments to the lender and to, instead, channel that money into local climate projects such as renewable energy or energy efficiency initiatives. In practice, these arrangements can be structured in various ways, and are often done so in coordination with foreign governments or nongovernment organizations, so long as the debtor country’s financial burden is relieved in exchange for a commitment to support climate initiatives. Debt-for-climate swaps are a variant of debt-for-nature swaps, which follow the same principle but tend to prioritize the protection of flora and fauna.

Since the first debt-for-nature swap was implemented in 1987, over 50 have been carried out across dozens of countries, typically emphasizing wildlife conservation. For example, the United States wrote off $30 million of debt for Indonesia in 2009, in exchange for a commitment to conserve the tropical forests of Sumatra, which are home to orangutans, tigers, elephants, and various other endangered species. France engaged in a similar swap with Cameroon in 2006, offering $25 million in debt relief in exchange for a pledge to protect forests in the Congo River Basin, the world’s second-largest rainforest and home to thousands of animal species.

In theory, debt-for-climate swaps can create win-win outcomes for creditors and debtors alike.

Debt relief arrangements that reduce deforestation, forest degradation, and land use can help to cut carbon dioxide emissions and the global warming that accompany them. Such efforts could also help to mollify the intensifying criticisms of multilateral lending institutions, particularly the International Monetary Fund (IMF) and the World Bank, which have been taken to task for failing to tackle the core challenges of our time, and China, which has been slammed for burying borrowers in debt through its Belt and Road Initiative and which has often financed pollution intensive projects by virtue of its focus on hard infrastructure.

Still, debt-for-nature swaps have existed for decades without being widely adopted or scaled up in the ways that their advocates envision. So why haven’t they caught on and how could they work better?

Read the full article about debt-for-climate swaps by Jonas Gamso at Stanford Social Innovation Review.