Replacing Debt with Clean Energy: A Critical Approach to Climate Justice Deals – Ziad Abdel Samad
Amid the escalation of debt crises and the aggravation of the consequences of climate change, the idea of “replacing debt with clean energy,” or what is conventionally known as debt-for-climate swaps, has emerged in recent years. This mechanism is based on an agreement between a creditor country and a debtor country, under which the latter is exempted from part of its debt in exchange for its commitment to invest the exempted amount in renewable energy projects or emissions reduction. In principle, the idea seems ideal: it relieves financial pressure on developing countries and directs their resources toward a sustainable energy transition.
However, this rosy picture collides with a set of structural and political challenges that make these swaps more of a symbolic tool than an effective strategy for reshaping the relationship between the North and the South in facing the climate crisis.
The first thing that draws attention is the structural imbalance in the balance of power between creditor and debtor. Developing countries do not negotiate from a position of equality, but from a position of need, which makes the conditions of exemption closer to a conditional grant or a disguised monitoring mechanism. Many similar climate deals include detailed commitments regarding the type of projects, monitoring mechanisms, and even implementing partners, which keeps debtor countries within the circle of economic and technological dependency on rich countries. In other words, the swap turns from an opportunity for environmental sovereignty into a tool for reproducing dependency in a “green” manner.
Added to this are the structural reasons that lead to the worsening of indebtedness, such as weak economic structures and excessive dependence on unstable external sources of financing, especially in the Arab region. Debt-for-clean-energy swaps do not address these structural roots; they merely provide partial relief of the financial burden without changing the pattern of the economy or the structure of production. In some cases, these deals turn into a new form of conditionality, as they restrict the national political space and impose development priorities from the outside. What if the country's needs required directing resources toward combating poverty, reducing inequality, or creating a structural transformation in the economy?
There is also a limitation in the actual financial impact of these swaps. Most of them include only a small portion of the public debt and often are limited to specific bilateral or commercial debts. In cases such as Ecuador and Barbados, the amount of exemption did not exceed 2 to 3 percent of the total debt—a symbolic percentage that does not change the reality of the financial crisis. Worse still, some creditors use these swaps as a means to improve their climate image without bearing a real cost, as they forgive bad or uncollectible debts in the first place, presenting them as a “green investment.” In this sense, climate action turns into a mechanism for political beautification rather than economic or environmental reform.
Conversely, these tools may create wrong incentives, as they may entice some governments to borrow again under the slogan of “sustainable financing,” which leads to deepening the debt crisis instead of resolving it. Thus, debt swaps become short-term painkillers that contribute to the continuation of the debt cycle rather than breaking it.
The second challenge lies in the weak institutional and technical capacities of debtor countries. Implementing clean energy projects requires advanced infrastructure, transparent management, and qualified technical staff. In many cases, these countries suffer from a lack of transparency and the overlap of political and economic interests, which makes the implementation of projects vulnerable to delay, corruption, or weak developmental impact. Moreover, the absence of unified standards for measuring the “climate impact” makes it difficult to verify that the exempted funds are actually used in green projects and not to cover the general deficit or support current expenditures.
But the deeper and less discussed challenge in the public debate is the shift from consumption-reduction policies to building clean productive capacity. Many countries involved in these deals are content with energy-saving or efficiency-improvement plans without possessing a real national strategy for renewable energy production. The transition from a consumer to a producer of clean energy requires huge investments in infrastructure, technology transfer, and long-term legislative stability—factors rarely available in countries burdened by debt or political turmoil. Consequently, the energy transition remains hostage to external financing rather than being the product of sustainable national planning.
In the language of responsibility allocation in climate negotiations, the term “carbon debt” is used to refer to the responsibility of developed countries for the accumulated emissions in the atmosphere since the Industrial Revolution. Estimates indicate that these countries bear about 70% of the historical emissions that caused global warming. From this standpoint, they have a responsibility to compensate developing countries through technology transfer, financing emission-reduction projects, and adaptation programs to climate disasters, as the latter affect poorer countries more severely than developed ones. These accumulated climate compensations may exceed in value the size of the debts those countries talk about, which imposes a fairer approach to addressing the interlinkage between debt and climate.
What is more dangerous is that developed countries continue to evade their responsibilities in addressing the debt crisis in a fair and comprehensive way, insisting on keeping the global financial system as it is, whereby debtor countries continue paying interest and servicing accumulated debts while the principal remains for decades. In this way, debt servicing becomes a tool for draining public resources and preventing their allocation toward investment in development and energy transition. From this perspective, developing countries should be in the position of recipients of climate compensations and fair financing, not in the position of bargaining over a portion of their debts. In other words, debt-for-clean-energy swaps may temporarily ease financial pressure, but they do not address the core imbalance in the global financial and climate systems.
There is also a political issue related to national sovereignty. The projects financed by these swaps are often subject to direct supervision by foreign institutions or companies, raising questions about resource ownership, control over energy policies, and direction of revenues. In some cases, these swaps are used to impose economic goals that go beyond the declared environmental objective, such as privatization or opening markets to foreign companies under the pretext of efficiency and sustainability.
All this does not mean that the mechanism is useless. Debt swaps can constitute a useful entry point if redesigned on fairer and more transparent grounds, granting debtor countries greater freedom in defining their energy priorities, with the guarantee of actual technology transfer rather than limited financing. These deals should also be part of a broader global strategy for reforming the debt structure and climate finance, not scattered initiatives serving the public relations of rich countries.
In conclusion, it can be said that replacing debt with clean energy represents an idea with great transformative potential, but it collides with an unequal economic reality. When presented as a symbolic solution without addressing the imbalances of the international financial system or empowering developing countries with independent energy production, these swaps become mere deals to beautify the existing system rather than steps toward real climate and financial justice. Only by linking financial relief, technological sovereignty, and a global moral commitment to shared responsibility can these initiatives be transformed from pressure tools into sustainable development bridges that redefine the relationship between economy and environment in the twenty-first century.
