
Source: IFRI
Climate Finance: How It Started vs. How It's Going
As global actors continue to strategize on the most effective approach towards ensuring a sustainable future, the intricacies of providing global access to climate finance are continuously being explored. Whether sustainable finance, green financing, or climate finance is referenced, the mission remains to study and establish a set of financial regulations, standards, norms, and practices that fuel (pun definitely-intended) a sustainable ecosystem.
Despite the recent commotion regarding climate finance, it is important to note that its first iteration dates back to November 2008, when the World Bank Group (“World Bank”) created the first green bond. After a group of Swedish pension funds showed interest in investing into climate-centric projects, the World Bank connected willing investors to climate projects via a bond—a bond is essentially an agreement where issuers borrow funds from investors and must repay said investors at an agreed rate after a specified period. The World Bank relied on the Intergovernmental Panel for Climate Change, a United Nations (“UN”) agency, and solicited the Centre for International Climate and Environmental Research (“CICERO”), an interdisciplinary research center for climate research in Oslo, for scientific data on climate change, and empirical research on its political and economic impacts. In 2015, China established a green financing system that included green credit, green bonds, and green development funds, with the Agricultural Bank of China issuing its first green bonds in late 2015. Most recently, UN COP 27 and the Paris Club have sustained the climate finance momentum with more dynamic strides forward; the former sealed a breakthrough agreement in the loss and damage fund, and the latter has been central to debt-relief funding to developing countries. Therefore, state and non-state actors alike, have all been historically involved in the evolution of green financing.
Climate Finance: An Acquired Taste?
However, and as echoed in the most recent Decarb Digest article, climate finance faces its fair share of obstacles. At the forefront of them is the disparity in climate finance dedicated to the “Global North” rather than to the “Global South”—with less than 3% of global climate finance flows to or within Least Developed Countries (“LDCs”). Developing countries are dealt a tough hand, in that financing the low-carbon transition is complicated by their lower creditworthiness, the nascent state of many of their sectors, low implementation capacity, lack of bankable projects, and debt sustainability, among other reasons. For developing economies, the commitment to a more impactful green footprint is threatened by the struggle to decarbonize at the same pace of developed economies. To the extent that recent investments in several Latin American countries were not limited to mineral mining and renewable energy sources, but also consisted in crude oil production. That said, an additional factor worth considering is the geopolitics of climate finance. Specifically, can the identity of investors influence the prospects of climate finance? If so, in what way does geopolitics affect the sustainability of climate finance as a financing pathway?
The Effects of the South-South Cooperation
Brazil is one of the countries that has welcomed investments in crude oil production, in conjunction with welcoming investments in green technologies and infrastructure. China has cemented its economic relations with Brazil through comprehensive strategic partnerships aimed to facilitate the mining of critical minerals and subsequently capitalize on the new discoveries of crude oil. For example, the Bacalhau Oil Field, jointly-owned by Equinor (40%, operator), ExxonMobil (40%), and Petrogal Brasil (20%), is an oil project located at a water depth of 2,050 m and approximately 185 km off the coast of Sao Paulo—the China National Offshore Oil Corporation owning a 25% share in the project via Exxon Mobile’s 40% ownership. China’s influence in Latin America (“LATAM”) has also reached Guyana and Suriname; two countries that are—comparatively speaking—ill-equipped to receive foreign direct investments in green energy production and mineral extraction. As a result, the ExxonMobil-led consortium acquired the rights to operate the offshore Stabroek Block, which is located approximately 191 km offshore Guyana and contains “several prospects and play types representing additional multi-billion barrel unrisked oil exploration potential.” This strategic partnership is expected to yield an extraction of US$11 billion worth of oil at a break-even point of US$35 per barrel. Although above mentioned projects, and many others similar in conception, are well-underway, announcing a reversal or backpedaling in green investments would be premature. However, these projects certainly hint at an undeniable Sino influence in LATAM.

LATAM, often referred to as the United States’ backyard throughout political history, has always weighed immensely in geopolitics. China has instrumentalized overseas foreign direct investment (“OFDI”) and loans to strengthen its ties to LATAM, with OFDI reaching approximately US$12 billion in 2022, thereby representing 9% of the region’s total OFDI in that year. China’s state-owned banks, namely China Development Bank and the Export-Import Bank of China, loaned approximately US$137 billion to Latin American governments between 2005 and 2022, typically to fund energy and infrastructure projects in exchange for oil. Not only did the Sino influence in LATAM hint at a geopolitical shift, to the dismay of the United States and the European Union, but the China-LATAM connection further materialized in China signing free trade agreements (“FTAs”) with Chile, Ecuador, Peru, and pending agreements with Uruguay, Panama, and Colombia. Additionally, each of these FTAs are said to be compliant with the UN’s 2030 SDGs.
A surface-level assessment would applaud these investments from the LATAM perspective. Given that climate finance is rarely the first viable option for developing LATAM countries, they are generally receptive to investments susceptible to solving their development needs. However, China’s development model still enables debt distress. For example, Guyana took a substantial loan from the Bank of China for US$172 million in order to help pay off a separate US$260 million loan owed to China Railway Construction Corporation, who had funded the modernization of transportation infrastructure. These so-called “debt traps” have reportedly been causing LATAM countries’ dependency on China for economic growth, with Chile having sent approximately US$36 billion worth of exports to China in 2021.

Sustainability of the South-South Cooperation
In gauging the sustainability of the South-South Cooperation, we must first assess the dynamic behind the triangular relationship involving LATAM, China, and the United States. Several LATAM countries have recognized that oil production, as well as mineral and renewable energy sources, are all in great demand. Consequently, they have positioned themselves to use both as a vehicle for economic growth and development. China continues to apply its financial and development model to country recipients eager—and often desperate—to develop. The United States must both balance its outstanding commitments, namely those to a sustainable feature, and attend to its national security. The question thus becomes: how does this three-dimensional chess game play out?
The United States and the European Union have a Hail Mary in their playbook. If assessed through a climate-centric lens, not only is oil production not a sustainable source of energy, but it is also not a durable development vehicle. That said, the sustainability of the South-South cooperation is protected by the compliant nature of the FTAs between China and several LATAM countries. It remains undetermined whether said FTAs carry sufficient leeway for LATAM countries to avoid the so-called debt trap. Consequently, by pushing the decarbonization agenda and by encouraging the adoption of green technologies, the United States and the European Union would have to envelope green investments with western influence to assure national security priorities and to dilute Sino Influence in its backyard. Brazil has proven to be all ears to all investors, as they unveiled a new program to support the mobilization of foreign capital into sustainable investments within the country. Although this position may not be replicated by all LATAM countries, Suriname and Guyana, to name a pair, are among the LATAM countries that have pursued oil endeavours while entertaining climate-friendly projects.
The denominating and differentiating factor may well be time. Time is of the essence on all fronts: the climate agenda urgently needs global and unwavering commitments, LATAM levels of poverty call for urgent economic and social developments, and the United States is looking to counteract and contain Sino influence in LATAM at the earliest convenience. Nonetheless, a comparative analysis of the development potential unlocked as a result of both green oil production and green investments could not only inform on the development model LATAM countries are more inclined to pursue, but it could also predict apprise on how geopolitics affects future prospects of climate financing. A story we, quite literally, cannot wait to be continued.
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