Debt-Fossil Fuel Trap Report 

Debt-Fossil Fuel Trap Report 

This article covers “Daily Current Affairs” and the topic details “Debt-Fossil Fuel Trap Report”. The topic “Debt-Fossil Fuel Trap Report” has relevance in the “Economy” section of the UPSC CSE exam.

For Prelims:

What is Debt-Fossil Fuel Trap Report?

For Mains:

GS3:  Economy

Why in the news?

Recently, Debt Justice, a group advocating against debt, released the report titled “The Debt-Fossil Fuel Trap” in collaboration with partners situated in the nations affected by this issue.


Debt-Fossil Fuel Trap Report

  • The report not only investigates this connection but also puts forth several potential solutions aimed at alleviating the burden of high debt. These solutions are intended to contribute to the broader goal of phasing out fossil fuel usage. 
  • It presents substantial evidence that highlights a troubling cycle: countries get trapped in a loop where they use fossil fuel revenues to repay debts.
  • However, the projected revenues from these fossil fuels are frequently inflated and demand significant investments to achieve the expected returns. 
  • This situation leads to further accumulation of debt, undermining the prospects for long-term development and causing severe negative impacts on both the environment and human well-being.


What is Debt-Fossil Fuel Trap?

The term “Debt-Fossil Fuel Trap” refers to a complex and concerning situation. In this scenario, countries, especially those in the global south, become entangled in a cycle where their debt burdens are closely tied to the production and reliance on fossil fuels.

  • Climate Crisis Spending Disparity: Countries in the global south allocate five times more funds to servicing debt than to addressing the repercussions of the climate crisis.
  • Sharp Surge in External Debt Payments: Between 2011 and 2023, external debt payments of these nations, acquired from wealthier countries, World Bank, IMF, or private lenders, have risen by 150%, marking a 25-year peak.
  • Exacerbation of Debt Situation: The situation worsens due to severe weather events, compelling these nations to secure additional loans owing to inadequate resources for climate adaptation, mitigation, and damage control.
  • Fossil Fuel Extraction as Response: To address mounting debts, these countries resort to intensified fossil fuel extraction.
  • Fossil Fuel Projects for Debt Relief: Argentina’s adoption of fracking initiatives in the Vaca Muerta oil and gas field is aimed at generating revenue to alleviate its debt crisis. Remarkably, even the IMF has endorsed these endeavors.
  • Impact of Natural Calamities on Debt: For instance, Dominica’s debt as a portion of its GDP increased from 68% to 78% following Hurricane Maria’s devastation in 2017.


Persistent Financing of Fossil Fuel Projects

Despite pledges to discontinue funding fossil fuel ventures in global south countries, affluent nations and international financial institutions continue to support such undertakings through loans. This practice augments debt burdens and perpetuates fossil fuel dependency.

  • Role of Resource Backed Loans (RBLs): 
    • One avenue facilitating this phenomenon involves the utilization of contracts such as resource-backed loans (RBLs).
    • Repayment within RBLs occurs either through natural resources (in-kind) such as minerals or oil, or via future income streams linked to resources. 
    • Alternatively, repayment is secured by income streams tied to resources, or by using a natural resource asset as collateral.
  • Oil Revenue Entanglement in Suriname: 
    • The South American nation, Suriname, defaulted on its debt in late 2020 and 2021. In the eventual agreement, creditors gained entitlement to 30% of Suriname’s oil earnings until 2050.
    • This arrangement pushes Suriname in oil exploitation, incentivizing it to maximize oil-generated revenue.
    • Consequently, not only do numerous fossil fuel ventures in global south nations lead to environmental and human harm, but they also lack economic viability. 
    • These initiatives leave countries in deeper financial turmoil, heightening indebtedness, and reinforcing reliance on fossil fuel extraction beyond their previous levels.



  • The report emphasises the urgent need for comprehensive debt relief, encompassing all creditors, without imposing economic conditions, while stressing the importance of clean energy adoption. 
  • To enable this transition, wealthy governments and institutions must halt repayments derived from fossil fuel projects. 
  • Additionally, financial support from bilateral and multilateral sources should align with climate targets and fair share calculations, refraining from funding further fossil fuel ventures. 
  • By implementing these measures, global south countries can pave the way for sustainable development and a decisive shift away from the detrimental cycle of debt and fossil fuel dependency.


Rich countries force poor nations to rely on fossil fuels: What a new report says 

Yojna daily current affairs eng med 24th August 2023


Q1. With reference to Debt-Fossil Fuel Trap, consider the following statements: 

  1. The Debt-Fossil Fuel Trap refers to the interconnection between high levels of external debt and the reliance on fossil fuel production in global south countries.
  2. The Debt-Fossil Fuel Trap report argues that fossil fuel projects are the only solution to reducing debt burdens in affected countries.
  3. The Debt-Fossil Fuel Trap report suggests that climate adaptation and mitigation efforts have been effectively financed through fossil fuel revenues.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 and 3 only

(c) 3 only 

(d) 1, 2 and 3 

Answer: (a) 


Q2. How many of the countries mentioned below share a border with Suriname?

  1. Guyana 
  2. Venezuela 
  3. Brazil
  4. Columbia

(a) Only one 

(b) Only two 

(c) Only three 

(d) All Four 

Answer: (b)

Q3. The concept of “Debt-Fossil Fuel Trap” has significant implications for both environmental sustainability and economic development in global south countries. Discuss.

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