Debt-for-Carbon: Using Carbon Credits for Debt Relief

Climate vulnerability countries are confronted with a dual challenge: rising disaster costs and increasing debt burden, limiting their ability to invest in climate-resilient development. To bridge this gap, debt-for-climate swaps are gaining traction in the climate finance debate, yet they often remain too small and too complex to achieve impact at scale. This discussion paper explores how carbon credits could be integrated into debt-for-climate swaps to overcome persistent challenges of debt swaps by simplifying transactions, enhancing transparency and credibility and incentivizing larger swap volumes.