Climate Finance for the Global South: Carbon Credits and Debt Swaps

Abstract

Barbara E Baarsma

This paper examines how nature-based carbon credits and debt-for-nature swaps can jointly support climate mitigation, biodiversity conservation, and economic resilience in the Global South. Agriculture is a major contributor to greenhouse gas emissions and soil degradation, disproportionately affecting smallholder farmers in low-income countries. What mechanisms can enhance the income models of smallholder farmers to facilitate their transition to sustainable agricultural practices that improve soil health and contribute to climate change mitigation? Nature-based carbon credits offer a promising solution by monetizing carbon stored in soils, trees, and pastures. When verified and traded, these credits can provide farmers with additional income while helping companies meet net-zero targets. However, the voluntary carbon market remains fragmented and largely inaccessible to smallholders. Debt-for-nature swaps complement this approach at the macroeconomic level by allowing countries to reduce sovereign debt in exchange for environmental commitments. When combined, these instruments can unlock greater impact by aligning fiscal relief with climate action and facilitating financial flows from the Global North to the Global South. The paper highlights the G20’s strategic role in scaling these solutions. It recommends establishing a global knowledge centre to standardize debt-for-nature swaps, promote high-integrity carbon credit frameworks, and support jurisdictional and commodity-wide approaches. The G20, in collaboration with the IMF, World Bank, NGOs, and the private sector, can help mobilize the financial and technical resources needed to expand access to carbon markets and support sustainable development.

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