November 17, 2000
Should financial institutions be asked to stop fossil fuel funding to developing countries?
At a meeting in Washington in 1998, Frank Loy, now head of the US delegation, told the Centre for Science and Environment, a New Delhi-based policy research organisation, that he needed support for telling the Export Import (Ex-Im) Bank to stop funding fossil fuel technology in developing countries. Now we find this position is being vigorously promoted by many Northern groups, who are urging their governments to use their influence on international financial institutions, and stop funding fossil fuel projects as a means of climate change mitigation. Some even see Kyoto targets as an obligation on industrialised countries to stop fossil fuel funding to the South.
If industrialised countries refuse to fund fossil fuel projects in developing countries, they will be using their financial muscle against weaker countries. Any section of the global civil society interested in global democracy should find the use of financial clout within or outside an environmental treaty undemocratic for more than one reason. To begin with, of course, developing countries do not have commitments under the Kyoto Protocol. There is a very good reason for this: they have contributed little to the global warming problem historically, and need time, and ecological space to develop. They will take on commitments at a later stage.
Meanwhile, industrialised countries, having contributed most to the problem, must take the lead in cutting GHG emissions. So far, none of them has shown that they are seriously willing to take responsibility. If those that are not responsible are unwilling to take action, what moral right do they have to force it on the poor? For instance, criticising a $330 million loan for a coal project in China in 1998, a Washington-based group stated that "China's fast-growing greenhouse gas pollution is emerging as the major stumbling block in negotiations on the global warming treaty drafted last December in Kyoto, Japan". Do Northern groups really consider "the major stumbling block" to be China's emissions and the solution to stop funding its coal projects? Or does the problem lie with the US, the one country that is holding up the Kyoto Protocol, demanding that it gets the cheapest possible reductions in the fossil fuel sector, even if it locks the world into carbon-based fuel for another century? And, that too at a time when the US is the world´s second largest consumer of coal. What gives it the moral authority to make China do otherwise?
Putting pressure on developing countries through financial institutions amounts to encouraging the use of aid, loans and trade as levers to bully developing countries into participation. These are not democratic levers for compliance, because they cannot be used by developing countries against industrialised countries. There is a fair chance that industrialised countries will default on their climate commitments once again. Developing countries will not have any funding or aid that they can withdraw to punish them.
Developing countries, meanwhile, have a genuine need to increase their power generating capacities. Should international funding organisations begin to lay down conditions to make them invest in more expensive technology, developing countries end up paying the price for the industrialised countries' past development orgy simply because they are forced to. Unless industrialised countries invest to make the non-fossil fuel path technically and commercially viable, and to use their greater wealth to show the way to a more sustainable path through example, they have no right to force costs and restrictions on developing countries that might compromise their development.
By forcing developing countries to stop using fossil fuel technologies without providing a framework for the world to move towards a renewable energy future, Northern groups are denying these countries the right to development.