Rethinking environmental protection: IMF Special Drawing Rights could finance the energy transition

© Nathalie Bertrams/ www.crossingborders.info

The threat posed by climate change is increasing and it is high time the world switched to renewable energies. But politics has not yet succeeded in investing sufficient funds quickly. There is an alternative though: create new money to spend on climate projects.

A glimmer of hope: the Green Climate Fund
It is December 2011 and yet another climate conference is underway. But the media have lost interest after the conference in Copenhagen two years ago failed to fulfil the world’s huge expectations. Most states continue to refuse point blank to agree to any binding CO2 reduction targets. Negotiations progress in slow motion at best, although according to the latest figures from the IPCC the climate catastrophe is moving ever closer.

Since the climate summit in Cancún at the end of 2010 though, there’s been a kind of plan B: setting up the Green Climate Fund. Many see this as a chance to start protecting the climate despite stagnant negotiations and drive the switch to renewable energies. As of 2012, 30 billion US dollars are to be paid into the Green Climate Fund each year and earmarked for climate projects. By 2020 the fund is scheduled to grow to 100 billion US dollars annually.

While it is questionable whether 100 billion are truly enough to fund the fight against climate change and if we can afford to wait another nine years, the fund clearly represents a considerable step forward compared to the present situation. For the very first time annual funds would reach a level that could really make a difference in protecting the climate.

Where should the money for an energy transition come from?

As one might be inclined to expect, the most important question remains unanswered: How is the Green Climate Fund to be financed? The deeply indebted industrialised countries will hardly be able to find such sums in their public budgets. Suggestions have been made to raise the money through a financial transaction tax on CO2 emission trade or duties raised on air and sea transport. But every dollar procured this way would have to be taken away from another institution. In all likelihood this approach – very welcome on principal – would run up against strong pushback from lobby groups. It is unlikely that the required sum could be raised this way.

What is needed then is an international source of funds that could make the full amount available without having to take them from a national budget or another institution. And there happens to be just such a global source of funds: the International Monetary Fund (IMF).

The IMF can allocate new, internationally exchangeable reserve assets – referred to as Special Drawing Rights (SDR). Which has led the World Future Council to suggest that the IMF could finance the Green Climate Fund with SDR.

This article can also be found on Digital Development Debates.

Friday, March 9th, 2012