So-called “debt-for-nature swaps” have regained prominence in recent years as part of efforts to raise finance for conservation efforts across biodiverse developing countries.
These “swaps” are financial agreements in which a conservation organisation or government reduces, restructures or buys a developing country’s debt at a discount in exchange for investment in local conservation activities.
Despite a biodiversity “finance gap” estimated at $700bn per year, little finance has been forthcoming from developed countries to help debt-distressed lower-income countries meet their biodiversity and climate targets.
One expert, who helped Ecuador negotiate a debt conversion deal in 2023, tells Carbon Brief that these swaps are “a very tangible strategy that is starting to be proven”.
He adds that they are one of the “big sustainable financing tools that can help” support global-south countries in following through on international treaties.
However, critics are less optimistic about the feasibility of debt-for-nature swaps.
Another expert tells Carbon Brief that the swaps are “far too small to have any impact at all” on the debt of developing countries and that they are “not even marginal to a solution at the current level of their size”.
Additionally, she says, “there’s no evidence that they have worked for nature”.
In this Q&A, Carbon Brief examines how debt-for-nature swaps work, the criticism they have received and whether they can alleviate biodiversity loss and climate change in developing countries.
- Where did the idea of debt-for-nature swaps come from?
- How do debt-for-nature swaps work?
- How are they gaining traction in nature finance and conservation policy?
- What are some of the chief criticisms of debt-for-nature swaps?
- Can debt-for-nature swaps be done better?
Where did the idea of debt-for-nature swaps come from?
The idea of debt swaps emerged in response to the global debt crisis of 1982-83 brought on by multiple shocks to the world economy.
The 1979-80 “oil shock”, for example, more than doubled the real price of oil for the oil-importing developing countries, raising interest rates on debt and reducing how much foreign exchange they could raise to service their debts.
This mushrooming crisis led to the creation of a secondary market for developing country debt in 1982, where loans to developing countries could be traded at a market-determined price.
This paved the way for “swaps” of various kinds, where banks could trade their foreign debt at a discount and reduce their financial exposure to precarious loans, while private investors could gain a foothold in new markets that were otherwise closed off to them.
In 1984, ecologist Dr Thomas Lovejoy – then a vice president of science at WWF – wrote a column in the New York Times advocating for swaps where the local currency raised would go towards conservation.
Unlike previous debt swaps driven by a profit motive and giving multinationals “equity” in a country, debt-for-nature swaps were supposed to benefit the debtor country. Lovejoy’s column is widely recognised as one of the “catalysts” for debt-for-nature swaps.
Three years later, in 1987, US-based Conservation International entered into the first-ever debt-for-nature agreement with Bolivia.
In exchange for the Bolivian government’s commitment to grant maximum legal protection to nearly 4m hectares in the Amazon Basin, Conservation International bought $650,000 worth of debt from a swiss bank for $100,000. Bolivia also agreed to provide $250,000 in local currency for management activities in the Beni Reserve.
Even early proponents of debt-for-nature swaps acknowledged that they were “no panacea” for environmental issues in the least-developed countries. Nevertheless, they continued to be popular and have seen a resurgence in the post-Covid era.
How do debt-for-nature swaps work?
In its simplest sense, a debt-for-nature swap involves:
- An indebted, biodiverse developing country.
- A creditor or a group of creditors, such as other governments or private bondholders.
- International conservation organisations, to buy back the debt.
- Local conservation organisations, to implement the swap.
International conservation organisations or private foundations based in the global north have initiated or brokered most debt-for-nature swaps.
Other actors and intermediaries involved in swaps can include commercial banks, multilateral development banks, private finance institutions, insurance companies and legal and financial advisors.
Today, there are many different kinds of debt-for-nature deals in progress, but swaps can broadly be classified as “private”, involving commercial debt, or “public”, involving the debt between governments.
Private debt swaps
In private debt swaps, NGOs offer to buy back part of a government’s commercial debt from private creditors at a significant discount compared to the debt’s face value.
The indebted country then commits to repaying this debt – in whole or in part and generally in local currency. The amount generated by this payment – the difference between the price paid in local currency and the discounted price the NGO buys the debt for – is then put into an environmental protection fund administered by the conservation NGO.
While this was the model for most debt-for-nature swaps until 2008, arrangements have grown more complex in recent years.
The “buy-back” of debt claims by NGOs, for instance, has grown to take the form of various kinds of bonds – essentially, an IOU or loan issued by a government or company, whereby the issuer promises to pay back the face value of the loan on a set date, with regular interest.
For example, the Nature Conservancy set up a trust fund in 2015 which issued a $15.2m “blue bond” that private philanthropic funds paid into. This sum was then lent to the Seychelles government, which used it to buy back $21.6m of debt from the Paris Club of developed country creditors.
In exchange, Seychelles pledged to protect 30% of its marine area and 15% of high-biodiversity regions, along with upgrading its marine mapping and fisheries policies.
Despite a total debt reduction of only $1.4m, the island state committed to investing $5.6m in marine conservation and $3m towards an endowment trust fund.
Public debt swaps
Swaps of debt between countries in exchange for conservation commitments are known as “public debt-for-nature swaps”.
Here, the indebted, biodiverse country restructures or buys back debt from a lender country at a reduced price. The interest or a percentage of the buy-back price then goes toward environmental protection.
The first such swap took place in 1988 between Costa Rica and the Netherlands to finance a 4,000-hectare reforestation programme.
These bilateral debt-for-nature swaps have seen a resurgence in the past year or so.
In January 2023, for instance, Portugal signed an agreement to swap up to $140m of Cape Verde’s debt for investments in a special environmental and climate fund, with more debt relief determined by how its former colony meets key climate and nature goals.
In September last year, the US and Peru entered into a swap agreement covering more than $20m of Peru’s debt to the US. The money will go towards a conservation fund to protect three priority areas in the Amazon rainforest and provide grants to local communities and NGOs.
How are swaps gaining traction in nature finance and conservation policy?
Since the 1980s, 145 debt-for-nature swaps worldwide have written off $3.7bn from the face value of debt globally, according to a 2022 report by the African Development Bank (AfDB).
Most of the debt swaps – $2.4bn of the total – have occurred in Latin America and the Caribbean.
Carbon Brief has compiled a list of debt swaps that have taken place around the world. This is based on data from the African Development Bank report, along with reports from governments, conservation organisations and the media. It is not an exhaustive list.
The map below shows where swaps have taken place. The circles indicate the financial size of the debt involved in the swap, while the colours show the decade in which the swap was completed.
Debt-for-nature swap deals around the world over 1987-2023. The size of the circles corresponds to the face value of debt being swapped for conservation investments by countries, while the colour of the circles corresponds to the decade in which the swaps took place. Source: Carbon Brief analysis of African Development Bank (2022) and media and conservation organisations reports (2022), WWF Center for Conservation Finance (2003) and Eurodad (2023). Debt values not adjusted for inflation.
At the COP15 climate summit in Copenhagen in 2009, debt-for-nature swaps featured at the UN Framework Convention on Climate Change for the first time. They were included in the negotiating text after Indonesia introduced “external debt swap/relief” as a source of finance.
At COP27 in Sharm el-Sheikh in 2022, the Sustainable Debt Coalition Initiative was established with the support of 16 countries. It asked for debt swaps and other mechanisms to tackle both climate change and financial stability concerns.
At COP28 in Dubai last year, eight multilateral development banks, including the Green Climate Fund and the Global Environment Facility, announced a working group to boost the effectiveness, accessibility and scalability of sustainability-linked sovereign finance, including debt-for-nature swaps.
In the announcement, the development banks acknowledged that the burden of debt owed by the developing countries “greatly hinder[s] their ability to meet their global climate and nature commitments”.
The debt issue is also being addressed in other international meetings.
During the April 2024 World Bank and International Monetary Fund spring meetings, the Vulnerable Twenty Group (V20) – made up of 68 heavily indebted, climate-vulnerable countries – called for additional reforms to the international financial system. They proposed several measures, including increased representation in the global financial system and greater access to concessional finance, or finance provided at lower interest rates than commercial finance, including debt-for-nature swaps.
Eva Martínez, a human rights lawyer and programme officer at the Centre for Economic and Social Rights (CEDES) in Ecuador, tells Carbon Brief that swaps will also feature at this year’s G20 summit in Brazil. She explains:
“There is a working document on the new financial architecture…There are [also] references to [debt swaps] for food sovereignty, debt-for-health swaps. The spectrum is broadening.”
What are some of the chief criticisms of debt-for-nature swaps?
Since their inception, debt-for-nature swaps have attracted considerable concern over whether they are effective for either debt relief or conservation.
As with biodiversity offsets and nature-based solutions, debt-for-nature swaps have been criticised for putting a price on nature and “reducing” it to a financial commodity.
Another complication is that “biodiversity is really cheap”, Dr Rebecca Ray from Boston University’s Global Development Policy Center tells Carbon Brief. As a result, creating and maintaining new protected areas is often a small fraction of a country’s sovereign debt. She adds:
“This means a little bit of debt swapped goes a really long way to fund new natural protected areas, but it doesn’t go very far on the debt. And so it’s not the most efficient way to discharge debt, even though countries are particularly facing debt stress right now.
”Repaying debt is hard for countries all around the world due to problems that are not their fault.”
These countries need “immediate debt relief that is fast and large”, Ray points out, but biodiversity conservation projects “tend to cost a lot less money and take a lot more time”.
The following sections provide an overview of some of the other criticisms of debt-for-nature swaps.
Conditionality, sovereignty and additionality
The earliest controversy around debt-for-nature swaps was a perceived fear of foreign interference, sovereignty and a “return to the colonial system”.
The first swap in Bolivia in 1987, for instance, “unilaterally titled” the land to be protected in the Amazon before Indigenous communities could obtain land tenure claims. In 1989, Brazil’s then-president Jose Sarney rejected debt-for-nature swaps stating: “[The] Amazon is ours… [a]fter all, it is situated in our territory.”
Entering into a debt-swap agreement “immediately results in a loss of autonomy and sovereignty” over the resolution of public debt, argues Mae Buenaventura, senior programme manager on debt and green economy at the Asian Peoples’ Movement on Debt and Development (APMDD). She tells Carbon Brief:
“Lenders determine the terms of the swap, meaning that they can impose conditions on borrowing governments on how they should invest the freed-up funds and can work towards privileging the lender and private corporations.”
This, Mae and other critics say, gives lenders in the global north “more control” in a developing country than if the debt were to be cancelled outright.
They point out that debt-for-nature swaps also inherently come with conditions attached for conservation measures and can, thus, be described as conditional debt relief.
Others fear that swaps could open the door to “tied-aid” methods, where aid must be spent on services from the lending country, such as swaps being coupled with carbon credits.
However, Ray sees significant evolution in governments’ and creditors’ understanding of the need to put traditional communities that depend on biodiversity front and centre in the planning process.
She cites the success of the 2015 Seychelles debt-for-nature swap, where the Seychelles government undertook a multi-year “deep consultation” process to understand threats to the livelihoods of small fishing communities living on remote islands. Ray says:
“This was a way that got community buy-in, obviously, because this was protecting the livelihoods of those fishing communities, but also recognising that traditional communities frequently don’t just live off of biodiversity, but they have to help protect the biodiversity in order to survive.”
Another criticism of swaps is that they do not create new, “additional” biodiversity funds from the global north. They also run the risk of being “double counted”, if the original loan being restructured in a swap had already been counted towards meeting aid targets.
Frederic Hache, co-founder of the independent thinktank of the EU Green Finance Observatory, tells Carbon Brief:
“The reality is that no global-north country has any intention of dispersing significant amounts of new grant money…All you get is these conditional financial instruments designed to benefit primarily global private investors.”
Scale, fees and forgiveness
The biggest criticism of debt swaps from all the experts Carbon Brief spoke to is their size relative to the looming sovereign debt of biodiversity-rich countries.
The graphic below compares the size of debt swaps (small, dark blue circle) to the amount that indebted developing countries have paid to service their debts (large, light blue circle) over the past three decades.
Between 1987 and 2023, low- and middle-income countries paid more than US$7.6tn in debt service versus $8.4bn treated through debt-for-nature swaps. Source: World Bank International Debt Report (2023) and Eurodad calculations based on the data from the World Bank International Debt Statistics.
The Seychelles marine biodiversity swap, for instance, was considered “one of the largest in history at the time”, but only amounted to $23m. Ray says:
“That’s pennies, in comparison to the billions of dollars that countries like Sri Lanka are currently negotiating for debt restructuring…[Swaps] only make sense as part of a broader package of debt relief to meet the current crisis.”
According to Prof Jayati Ghosh, professor of economics at the University of Massachusetts at Amherst, while debt swaps imply debt reduction, they “are far too small to have any impact at all” on countries’ debt. Sometimes, she says, swaps are not even a reduction, but instead allow countries some leeway in rescheduling their debt payments. Ghosh adds:
“It’s not even rearranging the deck chairs on the Titanic. It’s pretending to rearrange the deck chairs on the Titanic, with big creditor countries refusing to really make the kinds of interventions that would make a difference in reducing the sovereign debt while pretending to do something about climate and conservation finance. And they’re not.”
According to Carbon Brief analysis, among all the debt-for-nature swaps that have taken place, Poland’s 1992 swap allocated the highest amount of resources to nature conservation, totalling over $500m. Ecuador’s 2023 swap, which saw the largest amount of debt swapped at $1.1bn, had the second-highest investment in conservation, allocating more than $400m for this purpose.
The chart below shows the 20 countries that have been the target of the largest debt swaps (light blue) and the amount of that money earmarked for conservation funds (dark blue).
High transaction costs, which are driven up by lengthy, complex, multilateral negotiations, the number of agents involved and intermediary fees, also eat into conservation savings.
Others point out that other real-world challenges, such as unstable exchange rates along with high inflation, can “erode and undermine the real value” of a country’s conservation commitments. For example, in Zambia, funds generated by a $2.2m debt swap in 1989 were exhausted in a year “due to the rapid devaluation” of the local currency.
Human rights
Sandra Guzmán, founder and general coordinator of the Climate Finance Group for Latin America and the Caribbean (GFLAC), tells Carbon Brief that it is not possible to generalise the impacts of debt-for-nature swaps. She adds:
“A swap with the World Bank, a swap with the IDB [Inter-American Development Bank] or a swap with a commercial bank is very different. Not all swaps are done in the same way because it depends on the institutions involved.”
The 2007 debt-for-nature swap between Costa Rica and the US is an example of a swap where public information on its activities in Indigenous and local communities is available.
This swap involved more than 200 rural communities. One of the projects in the KéköLdi Indigenous territory, in south-eastern Costa Rica, helped the community reintroduce native iguanas and transmit ancestral knowledge to youth. Guzmán tells Carbon Brief:
“It has been said to be one of the most effective [swaps] because of the size of the debt cut and the conservation programme that Costa Rica promoted.”
However, not all debt-for-nature swaps have been so clear about the impacts on Indigenous and local communities.
Martínez, of CEDES Ecuador, tells Carbon Brief that the Galapagos debt-for-nature swap – signed last year to cancel $1.1bn of Ecuador’s debt in exchange for investing $450m to protect Galapagos islands – did not undergo a consultation process with Indigenous peoples and local communities. This could impact the economic, social, cultural and environmental rights of these communities, Martínez said.
The Climate Bonds Initiative published a report in 2023 analysing debt-for-nature swaps in the Seychelles, Belize, Barbados and Ecuador.
Daniel Costa, senior sustainability debt analyst at Climate Bonds Initiative, tells Carbon Brief that most of the analysed swaps do not mention how they involve local communities. He adds:
“This is what we would like to see further as these transactions are developed.”
Governance
Other criticisms of debt-for-nature swaps are the inadequate governance conditions that debtor countries may have. Governance refers to how swaps are implemented in the countries, the institutions and stakeholders involved and the structure of negotiations.
For example, the 2023 Galapagos swap had “serious limitations” in monitoring and enforcement, lack of transparency and accountability and “little clarity on potential fiscal risks for Ecuador”, according to recent analysis by the Latin American Network for Economic and Social Justice (Latindadd) and other organisations.
The analysis also revealed a lack of public information on the conservation fund and whether these actions have contributed to capacity-building at the local level.
The decision on which conservation activities will be implemented with a debt-for-nature swap varies from transaction to transaction, notes Costa, of Climate Bonds Initiative. These activities are often managed by funds, whose members include conservation organisations in addition to the government, he adds.
Carola Mejía, climate justice, transitions and Amazon coordinator at Latindadd, tells Carbon Brief that while swaps may be potentially scalable, they need to be improved in many ways. She says swaps must be built on principles such as transparency, respect for sovereignty and fairness in negotiation.
Guzmán, of GFLAC, tells Carbon Brief:
“Not all countries will have the same capacities in terms of governance, structures, human, financial and institutional capacities. There are severely indebted countries that need [debt] cancellation; there are countries that can do swaps because they have economies that can move towards those scenarios; and there are countries with greater financial capacity that may not [need] swaps, but other types of financing.”
Greenwashing
Civil society organisations and researchers have also raised concerns about the potential for “greenwashing” in some debt-for-nature swaps.
Mejía says countries in the global north are not meeting their climate finance and biodiversity commitments, but are promoting swaps as “the big solution”. This carries the risk of greenwashing, Mejía adds, as rather than creating positive action for the environment, swaps are generating more loans and debt.
For example, the $30m swap between Indonesia and the US made in 2009 in exchange for conserving rainforests on the island of Sumatra had several shortcomings, according to a 2011 study. The swap did not free up additional resources for the Indonesian government and was “too insignificant to create indirect (positive) economic effects”, the study says.
In the 2023 Galapagos swap, although the IDB provided an $85m guarantee to support the debt agreement for 18.5 years, the Latindadd report found that “there have been no additional international commitments or disbursements so far”.
Debt-for-nature swaps have also been questioned for not directly benefiting citizens and for transferring power over the management of the funds and the implementation of conservation projects to creditors.
The Gabon Blue Conservation was created as part of the swap where Gabon received $500m in exchange for protecting 30% of its oceans. This foreign-owned conservation organisation receives a 20% administration fee, which “immediately reduces the savings for the country by a [fifth]”, a report by the Coalition for Fair Fisheries Arrangements says.
Moreover, the report adds, “it is hard to see evidence that” the marine spatial plan, mandated by the Nature Conservancy for this swap, empowers marginalised groups, including fishers, for decision-making around coastal management.
Hache tells Carbon Brief:
“From a geopolitical perspective, swaps are great. It’s a way to gain access and control to land resources that will prove possibly precious in the future. This is…diplomacy by other means.”
Can debt-for-nature swaps be more effective?
Debt-for-nature swaps are being reviewed for their effectiveness again at a time when biodiverse, developing countries struggling with debt payments are having to find the financial resources to meet biodiversity and climate targets.
According to the latest World Bank debt report, low- and middle-income countries owed their foreign lenders $9tn in 2022. The same year, these countries paid a record $443.5bn to pay down these debts, with these payments diverting government spending away from critical development priorities, as well as climate and nature spending.
A 2023 study found that 67 countries at risk of defaulting on their loans collectively host 22% of global “biodiversity priority areas”, such as relatively intact but vulnerable forests, grasslands, deserts and mangroves. For 35 of these countries, it estimated that all of their unprotected biodiversity priority areas could be protected for a fraction of their national debt.
Debt-for-nature swaps and debt-for-climate swaps could free up more than $100bn of debt in developing countries, according to a recent analysis by the International Institute for Environment and Development (IIED).
Ray, from Boston University, says that swaps can help create space for countries to make climate-adaptation plans that also help preserve livelihoods that depend on biodiversity, such as fishing or collecting forest produce.
She adds that this can “interrupt a vicious cycle between natural capital and volatile financial capital”, where economic crises and extreme weather events drastically reduce climate adaptation and biodiversity budgets.
But, in order to create this breathing room for biodiversity, swaps need to accomplish multiple things, she tells Carbon Brief:
“You need a lot of time. You need political capital and institutional capacity to centre the communities who have traditionally been the stewards of biodiversity and find a way to make sure that not only is their access to biodiversity uninterrupted, but that they are accountable for that job and rewarded for it. And a real commitment to accountability from everyone involved to make sure these projects actually help support biodiversity and communities.”
Ray points to the case of “blue bonds” for marine conservation, a label that multinational bank Barclays called “misleading” in 2023. According to Barclays, while “the point of a green bond is that 100% of the proceeds raised are spent on” marine projects, in blue bonds floated, each extra party “takes a cut from the proceeds”.
Other experts Carbon Brief spoke to had differing views, suggesting that debt-for-nature swaps would not just require improvements in governance, but in reforming the architecture of international finance.
Guzmán says:
“[Swaps] are initially going to open up your fiscal space, but are not going to solve the financing problem for countries. What we need to fundamentally change is the operation of financial institutions and the type of loans and the conditions they give for those loans, i.e., lower interest rates and much more appropriate treatment. That is really what is going to help sustainable financing.”
To Ghosh, creditors are often “unwilling to make very large commitments of debt reduction”. She adds:
“You have to do something about sovereign debt on its own, which means you have to be serious about the debt reductions. That’s independent of whether you’re linking this conditionality with nature, because without dealing with the sovereign debt, you are not going to generate a green transition in any of these countries. They simply can’t afford it.”
Ghosh suggests solutions that could change the “landscape of debt”, including a standstill on debt during debt negotiations – where the amount of debt stays the same instead of accruing interest while parties come to a resolution – and involving all creditors: private, public and multilateral.
To Hache, the “devil lies in the details” of debt-for-nature swaps. He says:
“It’s about the proportion of the budget allocated to conservation. It’s about the real amount of debt forgiveness compared to where the debt was trading, compared to its nominal value earlier…Ultimately, you also have to compare it to the real alternative, which is debt forgiveness, and you kill any chances of debt forgiveness, loss and damages by endorsing or accepting these deals.”
The post Q&A: Can debt-for-nature ‘swaps’ help tackle biodiversity loss and climate change? appeared first on Carbon Brief.
Q&A: Can debt-for-nature ‘swaps’ help tackle biodiversity loss and climate change?
In 2026, the dangers of fossil fuel dependence have been laid bare like never before. The illegal invasion of Iran has brought pain and destruction to millions across the Middle East and triggered a global energy crisis impacting us all. Communities in the Pacific have been hit especially hard by rising fuel prices, and Australians have seen their cost-of-living woes deepen.
Such moments of crisis and upheaval can lead to positive transformation. But only when leaders act with courage and foresight.
There is no clearer statement of a government’s plans and priorities for the nation than its budget — how it plans to raise money, and what services, communities, and industries it will invest in.
As we count down the days to the 2026-27 Federal Budget, will the Albanese Government deliver a budget for our times? One that starts breaking the shackles of fossil fuels, accelerates the shift to clean energy, protects nature, and sees us work together with other countries towards a safer future for all? Or one that doubles down on coal and gas, locks in more climate chaos, and keeps us beholden to the whims of tyrants and billionaires.
Here’s what we think the moment demands, and what we’ll be looking out for when Treasurer Jim Chalmers steps up to the dispatch box on 12 May.
1. Stop fuelling the fire
2. Make big polluters pay
3. Support everyone to be part of the solution
4. Build the industries of the future
5. Build community resilience
6. Be a better neighbour
7. Protect nature
1. Stop fuelling the fire
In mid-April, Pacific governments and civil society met to redouble their efforts towards a Fossil Fuel Free Pacific. Moving beyond coal, oil and gas is fundamental to limiting warming to 1.5°C — a survival line for vulnerable communities and ecosystems. And as our Head of Pacific, Shiva Gounden, explained, it is “also a path of liberation that frees us from expensive, extractive and polluting fossil fuel imports and uplifts our communities”.
Pacific countries are at the forefront of growing global momentum towards a just transition away from fossil fuels, and it is way past time for Australia to get with the program. It is no longer a question of whether fossil fuel extraction will end, but whether that end will be appropriately managed and see communities supported through the transition, or whether it will be chaotic and disruptive.
So will this budget support the transition away from fossil fuels, or will it continue to prop up coal and gas?
When it comes to sensible moves the government can make right now, one stands out as a genuine low hanging fruit. Mining companies get a full rebate of the excise (or tax) that the rest of us pay on diesel fuel. This lowers their operating costs and acts as a large, ongoing subsidy on fossil fuel production — to the tune of $11 billion a year!
Greenpeace has long called for coal and gas companies to be removed from this outdated scheme, and for the billions in savings to be used to support the clean energy transition and to assist communities with adapting to the impacts of climate change. Will we see the government finally make this long overdue change, or will it once again cave to the fossil fuel lobby?
2. Make big polluters pay
While our communities continue to suffer the escalating costs of climate-fuelled disasters, our Government continues to support a massive expansion of Australia’s export gas industry. Gas is a dangerous fossil fuel, with every tonne of Australian gas adding to the global heating that endangers us all.
Moreover, companies like Santos and Woodside pay very little tax for the privilege of digging up and selling Australians’ natural endowment of fossil gas. Remarkably, the Government currently raises more tax from beer than from the Petroleum Resource Rent Tax (PRRT) — the main tax on gas profits.
Momentum has been building to replace or supplement the PRRT with a 25% tax on gas exports. This could raise up to $17 billion a year — funds that, like savings from removing the diesel tax rebate for coal and gas companies, could be spent on supporting the clean energy transition and assisting communities with adapting to worsening fires, floods, heatwaves and other impacts of climate change.
As politicians arrive in Canberra for budget week, they will be confronted by billboards calling for a fair tax on gas exports. The push now has the support of dozens of organisations and a growing number of politicians. Let’s hope the Treasurer seizes this rare window for reform.
3. Support everyone to be part of the solution
As the price of petrol and diesel rises, electric vehicles (EVs) are helping people cut fuel use and save money. However, while EV sales have jumped since the invasion of Iran sent fuel prices rising, they still only make up a fraction of total new car sales. This budget should help more Australians switch to electric vehicles and, even more importantly, enable more Australians to get around by bike, on foot, and on public transport. This means maintaining the EV discount, investing in public and active transport, and removing tax breaks for fuel-hungry utes and vans.
Millions of Australians already enjoy the cost-saving benefits of rooftop solar, batteries, and getting off gas. This budget should enable more households, and in particular those on lower incomes, to access these benefits. This means maintaining the Cheaper Home Batteries Program, and building on the Household Energy Upgrades Fund.
4. Build the industries of the future
If we’re to transition away from fossil fuels, we need to be building the clean industries of the future.
No state is more pivotal to Australia’s energy and industrial transformation than Western Australia. The state has unrivaled potential for renewable energy development and for replacing fossil fuel exports with clean exports like green iron. Such industries offer Western Australia the promise of a vibrant economic future, and for Australia to play an outsized positive role in the world’s efforts to reduce emissions.
However, realising this potential will require focussed support from the Federal Government. Among other measures, Greenpeace has recommended establishing the Australasian Green Iron Corporation as a joint venture between the Australian and Western Australian governments, a key trading partner, a major iron ore miner and steel makers. This would unite these central players around the complex task of building a large-scale green iron industry, and unleash Western Australia’s potential as a green industrial powerhouse.
5. Build community resilience
Believe it or not, our Government continues to spend far more on subsidising fossil fuel production — and on clearing up after climate-fuelled disasters — than it does on helping communities and industries reduce disaster costs through practical, proven methods for building their resilience.
Last year, the Government estimated that the cost of recovery from disasters like the devastating 2022 east coast floods on 2019-20 fires will rise to $13.5 billion. For contrast, the Government’s Disaster Ready Fund – the main national source of funding for disaster resilience – invests just $200 million a year in grants to support disaster preparedness and resilience building. This is despite the Government’s own National Emergency Management Agency (NEMA) estimating that for every dollar spent on disaster risk reduction, there is a $9.60 return on investment.
By redirecting funds currently spent on subsidising fossil fuel production, the Government can both stop incentivising climate destruction in the first place, and ensure that Australian communities and industries are better protected from worsening climate extremes.
No communities have more to lose from climate damage, or carry more knowledge of practical solutions, than Aboriginal and Torres Strait Islander peoples. The budget should include a dedicated First Nations climate adaptation fund, ensuring First Nations communities can develop solutions on their own terms, and access the support they need with adapting to extreme heat, coastal erosion and other escalating challenges.
6. Be a better neighbour
The global response to climate change depends on the adequate flow of support from developed economies like Australia to lower income nations with shifting to clean energy, adapting to the impacts of climate change, and addressing loss and damage.
Such support is vital to building trust and cooperation, reducing global emissions, and supporting regional and global security by enabling countries to transition away from fossil fuels and build greater resilience.
Despite its central leadership role in this year’s global climate negotiations, our Government is yet to announce its contribution to international climate finance for 2025-2030. Greenpeace recommends a commitment of $11 billion for this five year period, which is aligned with the global goal under the Paris Agreement to triple international climate finance from current levels.
This new commitment should include additional funding to address loss and damage from climate change and a substantial contribution to the Pacific Resilience Facility, ensuring support is accessible to countries and communities that need it most. It should also see Australia get firmly behind the vision of a Fossil Fuel Free Pacific.
7. Protect nature
There is no safe planet without protection of the ecosystems and biodiversity that sustain us and regulate our climate.
Last year the Parliament passed important and long overdue reforms to our national environment laws to ensure better protection for our forests and other critical ecosystems. However, the Government will need to provide sufficient funding to ensure the effective implementation of these reforms.
Greenpeace has recommended $500 million over four years to establish the National Environment Agency — the body responsible for enforcing and monitoring the new laws — and a further $50 million to Environment Information Australia for providing critical information and tools.
Further resourcing will also be required to fulfil the crucial goal of fully protecting 30% of Australian land and seas by 2030. This should include $1 billion towards ending deforestation by enabling farmers and loggers to retool away from destructive practices, $2 billion a year for restoring degraded lands, $5 billion for purchasing and creating new protected areas, and $200 million for expanding domestic and international marine protected areas.
Conclusion
This is not the first time that conflict overseas has triggered an energy crisis, or that a budget has been preceded by a summer of extreme weather disasters, highlighting the urgent need to phase out fossil fuels. What’s different in 2026 is the availability of solutions. Renewable energy is now cheaper and more accessible than ever before. Global momentum is firmly behind the transition away from fossil fuels. The Albanese Government, with its overwhelming majority, has the chance to set our nation up for the future, or keep us stranded in the past. Let’s hope it makes some smart choices.
The 2026 budget test: Will Australia break free from fossil fuels?
Anne Jellema is Executive Director of 350.org.
The war on Iran and Lebanon is a deeply unjust and devastating conflict, killing civilians at home, destroying lives, and at the same time sending shockwaves through the global economy. We, at 350.org, have calculated, drawing on price forecasts from the International Monetary Fund (IMF) and Goldman Sachs, just how much that volatility is costing us.
Even under the IMF’s baseline scenario – a de facto “best case” scenario with a near-term end to the war and related supply chain disruptions – oil and gas price spikes are projected to cost households and businesses globally more than $600 billion by the end of the year. Under the IMF’s “adverse scenario”, with prolonged conflict and sustained price pressures, we estimate those additional costs could exceed $1 trillion, even after accounting for reduced demand.
Which is why we urgently need a power shift. Governments are under growing pressure to respond to rising fuel and food costs and deepening energy poverty. And it’s becoming clearer to both voters and elected officials that fossil dependence is not only expensive and risky, but unnecessary.
People who can are voting with their wallets: sales of solar panels and electric vehicles are increasing sharply in many countries. But the working people who have nothing to spare, ironically, are the ones stuck with using oil and gas that is either exorbitantly expensive or simply impossible to get.
Drain on households and economies
In India, street food vendors can’t get cooking gas and in the Philippines, fishermen can’t afford to take their boats to sea. A quarter of British people say that rising energy tariffs will leave them completely unable to pay their bills. This is the moment for a global push to bring abundant and affordable clean energy to all.
In April, we released Out of Pocket, our new research report on how fossil fuels are draining households and economies. We were surprised by the scale of what we found. For decades, governments have reassured people that energy price spikes are unfortunate but unavoidable – the result of distant conflicts, market forces or geopolitical shocks beyond anyone’s control. But the numbers tell a different story.
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Santa Marta: Ministers grapple with practicalities of fossil fuel phase-out
Around 60 governments that want to make progress on transitioning away from coal, oil and gas are meeting in Colombia to work out how they can do it an equitable way -
Why the transition beyond fossil fuels depends on cities and collective action
Cities will help identify concrete pathways for an equitable shift to clean energy at the Santa Marta conference, with C40 members aiming to halve their fossil fuel use by 2030
What we are living through today is not an energy crisis. It is a fossil fuel crisis. In just the first 50 days of the Middle East conflict, soaring oil and gas prices have siphoned an estimated $158 billion–$166 billion from households and businesses worldwide. That is money extracted directly from people’s pockets and transferred, almost instantly, into fossil fuel company balance sheets. And this figure only captures the immediate impact of price spikes, not the permanent economic drain of fossil dependence. Fossil fuels don’t just cost us once, they cost us over and over again.
First, through our bills. Every time there is a war, an embargo or a supply disruption, fossil fuel prices surge. For ordinary people, this means higher costs for energy, transport and food. Many Global South countries have little or no fiscal space to buffer the shock; instead, workers and families pay the price.
Second, through our taxes. Governments around the world continue to pour vast sums of public money into fossil fuel subsidies. These are often justified as a way to protect the most vulnerable at the petrol pump or in their homes. But in reality, the benefits are overwhelmingly captured by wealthier households and corporations. The poorest 20% receive just a fraction of this support, while public finances are drained.
Third, through climate impacts. New research across more than 24,000 global locations gives a granular account of the true costs of extreme heat, sea level rise and falling agricultural yields. Using this data to update IMF modelling of the social cost of carbon, we found that fossil fuel impacts on health and livelihoods amount to over $9 trillion a year. This is the biggest subsidy of all, because these massive and mounting costs are not charged to Big Oil – they are paid for by governments and households, with the poorest shouldering the lion’s share.
Massive transfer of wealth to fossil fuel industry
Adding up direct subsidies, tax breaks and the unpaid bill for climate damages, the total transfer of wealth from the public to the fossil fuel industry amounts to $12 trillion even in a “normal” year without a global oil shock. That’s more than 50% higher than the IMF has previously estimated, and equivalent to a staggering $23 million a minute.
The fossil fuel industry has become extraordinarily adept at profiting from instability. When conflict drives up prices, companies do not lose, they gain. In the current crisis, oil producers and commodity traders are on track to secure tens of billions of dollars in additional windfall profits, even as households face rising bills and governments struggle to manage the fallout.
Fossil fuel crisis offers chance to speed up energy transition, ministers say
This growing disconnect is impossible to ignore. Investors are advised to buy into fossil fuel firms precisely because of their ability to generate profits in times of crisis. Meanwhile, ordinary people are told to tighten their belts.
In 2026, unlike during the oil shocks of the 1970s, clean energy is no longer a distant alternative. Now, even more than when gas prices spiked due to Russia’s invasion of Ukraine in 2022, renewables are often the cheapest option available. Solar and wind can be deployed quickly, at scale, and without the volatility that defines fossil fuel markets.
How to transition from dirty to clean energy
The solutions are clear. Governments must implement permanent windfall taxes on fossil fuel companies to ensure that extraordinary profits generated during crises are redirected to support households. These revenues can be used to reduce energy bills, invest in public services, and accelerate the rollout of clean energy.
Second, we must shift subsidies away from fossil fuels and towards renewable solutions, particularly those that can be deployed quickly and equitably, such as rooftop and community solar. This is not just about cutting emissions. It is about building a more stable, fair and resilient energy system.
Finally, we need binding plans to phase out fossil fuels altogether, replacing them with homegrown renewable energy that can shield economies from future shocks. Because what the current crisis has made clear is this: as long as we remain dependent on fossil fuels, we remain vulnerable – to conflict, to price volatility and to the escalating impacts of climate change.
The true price of fossil fuels is no longer hidden. It is visible in rising bills, strained public finances and communities pushed to the brink. And it is being paid, every day, by ordinary people around the world.
It’s time for the great power shift.
Full details on the methodology used for this report are available here.
The Great Power Shift is a new campaign by 350.org global campaign to pressure governments to bring down energy bills for good by ending fossil fuel dependence and investing in clean, affordable energy for all
The post What fossil fuels really cost us in a world at war appeared first on Climate Home News.
Computer models that use artificial intelligence (AI) cannot forecast record-breaking weather as well as traditional climate models, according to a new study.
It is well established that AI climate models have surpassed traditional, physics-based climate models for some aspects of weather forecasting.
However, new research published in Science Advances finds that AI models still “underperform” in forecasting record-breaking extreme weather events.
The authors tested how well both AI and traditional weather models could simulate thousands of record-breaking hot, cold and windy events that were recorded in 2018 and 2020.
They find that AI models underestimate both the frequency and intensity of record-breaking events.
A study author tells Carbon Brief that the analysis is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
AI weather forecasts
Extreme weather events, such as floods, heatwaves and storms, drive hundreds of billions of dollars in damages every year through the destruction of cropland, impacts on infrastructure and the loss of human life.
Many governments have developed early warning systems to prepare the general public and mobilise disaster response teams for imminent extreme weather events. These systems have been shown to minimise damages and save lives.
For decades, scientists have used numerical weather prediction models to simulate the weather days, or weeks, in advance.
These models rely on a series of complex equations that reproduce processes in the atmosphere and ocean. The equations are rooted in fundamental laws of physics, based on decades of research by climate scientists. As a result, these models are referred to as “physics-based” models.
However, AI-based climate models are gaining popularity as an alternative for weather forecasting.
Instead of using physics, these models use a statistical approach. Scientists present AI models with a large batch of historical weather data, known as training data, which teaches the model to recognise patterns and make predictions.
To produce a new forecast, the AI model draws on this bank of knowledge and follows the patterns that it knows.
There are many advantages to AI weather forecasts. For example, they use less computing power than physics-based models, because they do not have to run thousands of mathematical equations.
Furthermore, many AI models have been found to perform better than traditional physics-based models at weather forecasts.
However, these models also have drawbacks.
Study author Prof Sebastian Engelke, a professor at the research institute for statistics and information science at the University of Geneva, tells Carbon Brief that AI models “depend strongly on the training data” and are “relatively constrained to the range of this dataset”.
In other words, AI models struggle to simulate brand new weather patterns, instead tending forecast events of a similar strength to those seen before. As a result, it is unclear whether AI models can simulate unprecedented, record-breaking extreme events that, by definition, have never been seen before.
Record-breaking extremes
Extreme weather events are becoming more intense and frequent as the climate warms. Record-shattering extremes – those that break existing records by large margins – are also becoming more regular.
For example, during a 2021 heatwave in north-western US and Canada, local temperature records were broken by up to 5C. According to one study, the heatwave would have been “impossible” without human-caused climate change.
The new study explores how accurately AI and physics-based models can forecast such record-breaking extremes.
First, the authors identified every heat, cold and wind event in 2018 and 2020 that broke a record previously set between 1979 and 2017. (They chose these years due to data availability.) The authors use ERA5 reanalysis data to identify these records.
This produced a large sample size of record-breaking events. For the year 2020, the authors identified around 160,000 heat, 33,000 cold and 53,000 wind records, spread across different seasons and world regions.
For their traditional, physics-based model, the authors selected the High RESolution forecast model from the Integrated Forecasting System of the European Centre for Medium-Range Weather Forecasts. This is “widely considered as the leading physics-based numerical weather prediction model”, according to the paper.
They also selected three “leading” AI weather models – the GraphCast model from Google Deepmind, Pangu-Weather developed by Huawei Cloud and the Fuxi model, developed by a team from Shanghai.
The authors then assessed how accurately each model could forecast the extremes observed in the year 2020.
Dr Zhongwei Zhang is the lead author on the study and a researcher at Karlsruhe Institute of Technology. He tells Carbon Brief that many AI weather forecast models were built for “general weather conditions”, as they use all historical weather data to train the models. Meanwhile, forecasting extremes is considered a “secondary task” by the models.
The authors explored a range of different “lead times” – in other words, how far into the future the model is forecasting. For example, a lead time of two days could mean the model uses the weather conditions at midnight on 1 January to simulate weather conditions at midnight on 3 January.
The plot below shows how accurately the models forecasted all extreme events (left) and heat extremes (right) under different lead times. This is measured using “root mean square error” – a metric of how accurate a model is, where a lower value indicates lower error and higher accuracy.
The chart on the left shows how two of the AI models (blue and green) performed better than the physics-based model (black) when forecasting all weather across the year 2020.
However, the chart on the right illustrates how the physics-based model (black) performed better than all three AI models (blue, red and green) when it came to forecasting heat extremes.
The authors note that the performance gap between AI and physics-based models is widest for lower lead times, indicating that AI models have greater difficulty making predictions in the near future.
They find similar results for cold and wind records.
In addition, the authors find that AI models generally “underpredict” temperature during heat records and “overpredict” during cold records.
The study finds that the larger the margin that the record is broken by, the less well the AI model predicts the intensity of the event.
‘Warning shot’
Study author Prof Erich Fischer is a climate scientist at ETH Zurich and a Carbon Brief contributing editor. He tells Carbon Brief that the result is “not unexpected”.
He adds that the analysis is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
The analysis, he continues, is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
AI models are likely to continue to improve, but scientists should “not yet” fully replace traditional forecasting models with AI ones, according to Fischer.
He explains that accurate forecasts are “most needed” in the runup to potential record-breaking extremes, because they are the trigger for early warning systems that help minimise damages caused by extreme weather.
Leonardo Olivetti is a PhD student at Uppsala University, who has published work on AI weather forecasting and was not involved in the study.
He tells Carbon Brief that “many other studies” have identified issues with using AI models for “extremes”, but this paper is novel for its specific focus on extremes.
Olivetti notes that AI models are already used alongside physics-based models at “some of the major weather forecasting centres around the world”. However, the study results suggest “caution against relying too heavily on these [AI] models”, he says.
Prof Martin Schultz, a professor in computational earth system science at the University of Cologne who was not involved in the study, tells Carbon Brief that the results of the analysis are “very interesting, but not too surprising”.
He adds that the study “justifies the continued use of classical numerical weather models in operational forecasts, in spite of their tremendous computational costs”.
Advances in forecasting
The field of AI weather forecasting is evolving rapidly.
Olivetti notes that the three AI models tested in the study are an “older generation” of AI models. In the last two years, newer “probabilistic” forecast models have emerged that “claim to better capture extremes”, he explains.
The three AI models used in the analysis are “deterministic”, meaning that they only simulate one possible future outcome.
In contrast, study author Engelke tells Carbon Brief that probabilistic models “create several possible future states of the weather” and are therefore more likely to capture record-breaking extremes.
Engelke says it is “important” to evaluate the newer generation of models for their ability to forecast weather extremes.
He adds that this paper has set out a “protocol” for testing the ability of AI models to predict unprecedented extreme events, which he hopes other researchers will go on to use.
The study says that another “promising direction” for future research is to develop models that combine aspects of traditional, physics-based weather forecasts with AI models.
Engelke says this approach would be “best of both worlds”, as it would combine the ability of physics-based models to simulate record-breaking weather with the computational efficiency of AI models.
Dr Kyle Hilburn, a research scientist at Colorado State University, notes that the study does not address extreme rainfall, which he says “presents challenges for both modelling and observing”. This, he says, is an “important” area for future research.
The post Traditional models still ‘outperform AI’ for extreme weather forecasts appeared first on Carbon Brief.
Traditional models still ‘outperform AI’ for extreme weather forecasts
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