DEBT-FOR-REMOVAL SWAPS

A debt-for-carbon-removal swap reduces or refinances a government’s sovereign debt and commits part of the resulting savings to a protected national CDR programme. The government does not normally give removal units to its creditors or remove CO₂ itself. Instead, the programme funds public, private or community projects through grants, infrastructure investment, measurement support or removal purchases. A creditor may cancel debt, or insured replacement finance may let the government repurchase expensive bonds. Existing swaps fund nature conservation rather than verified CDR. They demonstrate this financing structure, not removal outcomes, and cannot replace broader restructuring when debt remains unsustainable.

The central test is whether the conversion leaves genuine public savings after fees, insurance, new repayments and the CDR commitment. Agreements should state the debt exchanged, currency risk, payment schedule, remedies and control of the protected budget. Creditors normally receive repayment on revised terms, not ownership of removals. Separate programme rules should identify the projects receiving money and determine who owns any resulting units. International transfers require host-country authorisation and a corresponding adjustment where Article 6 applies. The programme also needs lifecycle assessment for projects, storage requirements, safeguards, reversal responsibility, public reporting, independent oversight and community participation.

Where grants or broad debt relief are unavailable, a swap can turn lower debt payments into predictable, multi-year CDR funding without increasing the government’s financing burden. The government can finance rather than operate projects, allowing public, private or community suppliers to develop measurement capacity, prepare facilities, build shared infrastructure or deliver removals. Guarantees can make replacement debt acceptable to investors despite sovereign risk. Nature-swap experience shows the structure is possible, but not that it will produce credible removals or suit countries needing deeper debt relief.

Fees, insurance and committed spending may absorb most savings, leaving little fiscal benefit. Complex agreements can hide liabilities or restrict future debt management. Weak programme rules may relabel forest protection or avoided emissions as removal. Exchange-rate changes, project failure, diverted funds or missed milestones can strain public budgets. Long commitments may displace other priorities, while poorly governed projects can harm land, water, livelihoods or communities.

Public reporting should separate the debt reduction, transaction costs, government savings, transfers into the protected programme and spending by purpose. Verified removals, delivery failures, reversals and ownership or transfer of units show what the programme achieved. Material shortfalls, diverted funds, duplicate claims or safeguards failures should suspend payments, change eligible uses or activate contractual remedies.

The transaction requires separate agreement on affordable debt terms and use of the resulting savings. Government debt officials, creditors, arrangers and guarantors negotiate the financial conversion. Climate authorities, programme administrators, CDR suppliers, independent experts, legislators, communities and civil society determine how the protected money is spent, which projects qualify, who owns removal units and how delivery and safeguards are checked.

National governments alone can alter sovereign debt and utilise the savings, but they need not develop removal projects. International development banks and bilateral finance agencies can provide guarantees, insurance or creditor participation. Banks, bondholders and specialist arrangers negotiate and execute the debt exchange. Philanthropic organisations may fund preparation, protect part of the risk or help administer the spending vehicle. The national government remains responsible for debt sustainability, public accounts and programme rules, while separate public, private or community suppliers can receive finance and deliver the CDR activities.