Jim Warren: The climate reparations plan: what could possibly go wrong?

 

Among the virtuous at the 2015 Paris Climate Summit were political leaders from rich countries who feel guilty about colonialism and assume unchecked climate change will put an end to modern civilization as we know it. As luck would have it, a group of  20 poor developing countries showed up in Paris with a way to make things right. The result—all 27 EU member states along with 23 other developed nations agreed to cough up $100 billion annually over the next few decades to compensate the poor world for the costs of climate change.

The newly-elected Justin Trudeau Liberal government got four square behind the climate compensation plan in 2015, but like other rich countries didn’t put up much new aid money. Six years after Paris, at the 2021 Conference of the Parties (COP26) climate extravaganza in Glasgow, Scotland, Canada and fellow international busybody, Germany, castigated developed countries for failing to come up with anything close to the $100 billion in annual support promised in 2015. They claimed that without a serious commitment to provide climate vulnerable countries with at least $345 billion by 2030 irreparable calamities would ensue.

Things simply had to improve. With Justin Trudeau, and internationally renowned human fly, Steven Guilbeault (able to climb walls), backing the revived plan, what could possibly go wrong?

Countries seeking climate compensation have a lobby organization, The Climate Vulnerable Forum (CVF). As of 2022 it had 55 members. The CVF promotes itself as a cooperative initiative on the part of countries that are “systematically vulnerable to climate change.” The group’s primary goal is to “increase the accountability of industrialized nations for the consequences of climate change.”

In return for climate reparations, CVF members promise to manage their industrial growth sustainably, undertaking measures to minimize greenhouse gas emissions. Of course they expect plenty of financial support for making the effort.

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With backing from The Bill and Melinda Gates Foundation, environmental organizations and UN agencies, the CVF has the organizational strength and financing required to conduct highly effective lobbying on an international scale.

The CVF wants support for the adaptive measures they claim will be needed to reduce their vulnerability to the impacts of climate change. The group’s membership includes island nations worried about sea level rise and tidal surges. Some members are African countries where Inter-governmental Panel on Climate Change (IPCC) models predict droughts will become more common and severe. Other CVF countries anticipate heat waves will become more common and coastal storms will be more severe, etc.

It may indeed be both humane and cost effective to provide a nearly submerged island nation like the Maldives with the funds required to construct sea walls and raise its elevation. That sort of adaptation could prove cheaper and easier in the long run than trying to accommodate half a million Maldivian climate refugees. At the same time it’s difficult to get an accurate assessment of the actual plight of island nations. News-talk radio host, John Gormley, recalls that back  when he was a Member of Parliament (1984-1988), MPs were informed the Maldives would be submerged in 30 years. The good news is they have managed to keep their heads above water at least five years longer than expected.

There may indeed be countries like the Maldives that could legitimately claim they need international assistance to reduce their vulnerability to climate related hazards. Nonetheless, the compensation plan has troubling flaws. One challenge is determining which countries have legitimate claims. Given that the environmentally alarmed assume anything bad that happens, from tooth decay to hemorrhoids, is caused by climate change will virtually anyone with their hand out be funded?  There’s no telling how many countries will join the CVF once serious money starts to flow.

Another issue is a longstanding problem faced by international aid agencies. How can donors ensure their contributions are prudently managed?

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As it turns out many CVF member countries have characteristics that militate against judicious financial management. The majority of them have poor ratings on international rankings measuring corruption and the level of democratic governance they enjoy.

For example, 80 per cent of CVF members fall into the sketchier bottom half of Transparency International’s Corruption Perceptions Index (CPI). The corruption ratings are based on survey data that includes international affairs practitioners and citizens of the countries evaluated. The index assesses the level of trust or distrust there is in a country’s government to act honestly as opposed to criminally. Denmark tops the list as the world’s least corrupt country with a score of 90, Somalia is rated as the most corrupt with a score of 12. South Sudan, a CVF member, fares only slightly better with a score of 13. All but four of the CVF member states included in the CPI have scores less than or equal to the median score of 39.

CVF members with scores in the most corrupt bottom third of the list include some of the world’s most dysfunctional countries, including: Haiti, Afghanistan, Honduras, Guatemala, Liberia, Malawi, and the Democratic Republic of the Congo. International lenders and rating agencies often conclude that providing funds to corrupt and incompetent governments is risky business. The Paris Agreement offers CVF countries with financing opportunities that are not as significantly influenced by the bond raters.

Those countries that perform poorly on the corruption index also tend to be among the world’s least democratic nations. The Economist Intelligence Unit publishes a Democracy Index that rates 167 counties along a continuum that runs from fully democratic to authoritarian. Norway tops the list as the most democratic country on the planet. Afghanistan holds last place – the world’s least democratic country. FYI, Canada ranked 14^th in 2022. That’s down from the 5th place position we held in 1999. The Economist assessed the quality of government in 42 of the 55 CVF member states.

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A total of 16 CVF members are flat out authoritarian states, run by dictators, oligarchs or military juntas. Another 17 are identified as hybrid regimes closer to being authoritarian than fully democratic. Of the remaining nine countries listed, eight are classed as flawed democracies. Only one of the CVF members in The Economist’s index, Costa Rica, is classed as fully democratic.

Data published by the Brookings Institute shows that 55 per cent of African countries were subject to credit rating downgrades in 2020. The world average for downgrades that year was just over 30 per cent. Only two African countries, Botswana and Mauritius, had bond offerings rated higher than junk status (neither is a member of the CVF). African nations are of interest given they account for 38 per cent of the CVF members who fall into the more corrupt bottom half of the CPI. Assuming that the inability to repay international debt obligations and low credit ratings is a reflection of weak governance and financial management suggests some CVF members might be sub-optimal managers of climate change reparations money.

According to The Economist, rating agencies like Moody’s claim African countries receive low ratings because “they collect little in the way of tax, borrow in foreign currencies and face other genuine obstacles.” The rating agencies claim they also evaluate a country’s economic circumstances and how likely it is “to repay its debts on time and in full.” The Economist diplomatically avoids digging too deep into what all of those other genuine obstacles might be. The data presented above showing high levels of corruption and low levels of democracy suggests that kleptocratic authoritarian governance has something to do with money management problems in some African countries.

For their part, African nations claim they are being treated unfairly by rating agencies who “take a blanket approach to risk that can ignore the differences between African countries.” That may be true. However, given their scandalous performance rating sub-prime mortgage-backed securities in the 2000s, one is tempted to treat the evaluations of the big rating agencies with a grain of salt.

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Things are only slightly better when we look at the performance of CVF members listed in the World Bank’s Ease of Doing Business Index. Good places to do business are those with well-functioning market economies, low taxes and legal systems that protect investments and govern contracts. The worst places to do business are those countries where life is dangerous, investments and property can be confiscated and government corruption is epidemic. Of the 190 countries ranked, New Zealand and Singapore come in 1^st and 2^nd, scoring 86.5/100 and 84.57/100 respectively. Somalia comes in last with a score of 19.98. The highest rankings for CVF members are held by Costa Rica at 64^th place and Morocco in 69^th. Three CVF members are ranked in the 80s. There is one score of 90 and after that all the rest fall into the bottom half.

The pattern is pretty clear. Ensuring that climate reparations and adaptation financing is effectively managed will be a challenge in many of the countries seeking support.

The foregoing is not intended to suggest that nothing should be done to assist poor countries trying to cope with climate related hazards. Taking adaptive measures to increase resilience in the face of extreme weather and disasters like earthquakes and tsunamis is humane and can make eminently good economic sense. Efforts made since the 2004 Indian Ocean earthquake and tsunami disaster to warn coastal populations about potential tsunamis and tidal surges have saved many thousands of lives.

Nonetheless, developed countries promising to spend billions on climate reparations and adaptation aid need to ensure recipients are capable of conscientious financial management. We should be able to count on value for money spent. This is a job for serious people. It’s best not left to virtue signaling do-gooders who use other people’s money to purchase their environmental wings and halos. One daunting prospect is that the Canadian government will come up with something like a carbon tax top-up to foot our share of the bill.

 

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