Green groups wary of new IMF climate fund

The International Monetary Fund has proposed a $100 billion "green fund" to raise money for climate change, drawing skepticism from the environmental and international finance communities.

The proposal comes on the heels of the Copenhagen Accord global warming agreement that calls on nations to mobilize up to $100 billion annually by 2020 to help the world's poorest countries cope with weather-related disasters and develop lower-carbon economies.

IMF Managing Director Dominique Strauss-Kahn did not directly mention of the Copenhagen Accord in announcing the fund. But with the World Bank, the Global Environment Facility and the United Nations Framework Convention on Climate Change already jockeying for a role in channeling the money, analysts said they aren't surprised to see the IMF vying for a cut of the action.

"It looks to me like they're positioning themselves to manage the Copenhagen green climate fund, but they don't want to call it that," said Heather Allen, international advocate at the Natural Resources Defense Council.

Allen noted that agencies around the world are just starting to discuss the best way to create a major new structure that mobilizes, manages and prioritizes the spending of vast sums of money for a new purpose. "Everyone wants a piece of the pie and wants to be a player," she said.

Generating billions of dollars to address climate concerns in poor countries is central to the international global warming debate. Scientists note that the world's 100 poorest countries combined are responsible for just 3 percent of global emissions, but because of already-existing poverty and vulnerable environmental conditions are expected to suffer the worst consequences of climate change.

Speaking at the World Economic Forum in Davos, Strauss-Kahn said debt-strapped developed countries emerging from the global economic crisis need to come up with innovative ways to mobilize climate funding. He proposed generating the money in part by issuing special drawing rights -- a type of IMF currency that most recently was tapped to respond to the financial crisis.

IMF said to be talking to central banks
Strauss-Kahn said the IMF plans to launch discussions with central banks and finance ministers about the "Green Fund" and issue a report in the coming weeks. But the IMF did not return two interview requests to discuss the plan.

It was billionaire investor George Soros who actually first spearheaded the notion of using $100 billion of gold reserves to back loans from rich countries to poor ones. Pitching the idea at the U.N. climate summit in Copenhagen, Soros said developing countries would pay back the IMF loan with interest, but the sum would be backed by the institution's gold reserves in the event of a default.

"Developed countries governments are laboring under the misapprehension that funding has to come from the national budgets but that is not the case," Soros wrote in an op-ed. "They have it already. It is lying idle in their reserves accounts and in the vaults of the IMF."

Green groups widely applauded Soros' idea, and many this week praised the IMF for trying to take a role in climate finance. But they also were cautious, questioning whether the institution has the climate change experience or the credibility with developing countries to take on a major new role.

"The idea of having a green fund is an important idea ... and it's great to see those signals picked up on by an institution that has global reach," said Janet Redman, co-director of the Sustainable Energy and Economy Network.

She noted that issuing special drawing rights "takes a burden off middle class taxpayers and makes it a little less painful to fund the kind of work that has to happen." But poor nations grappling with the emission impacts of the industrial world view climate funding as reparations and argue the money should be given in grants, not loans. Redman and other activists questioned whether the IMF has the expertise in climate change or the credibility with developing countries to take a leading role on climate finance.

Is IMF the right place to finance climate efforts?
International finance experts also openly wondered what expertise the IMF has in climate finance and whether it has the capacity to take a leading role. Clay Lowery, managing director of the Glover Park Group and former assistant secretary for international affairs at the U.S. Treasury Department said the proposal calls into question whether the IMF is straying from its mandate.

Founded in 1945, the IMF was created as a forum to promote international monetary cooperation, promote exchange rate stability and provide temporary support to help member countries with balance of payment problems to bolster confidence in the international trade system.

Special drawing rights were created to provide liquidity to the global economic system. But, Lowery noted, tapping into them as each new crisis arises -- be it the financial meltdown or climate change -- calls into question the idea of the international reserve assets in the first place.

Hammering out the structure of climate financing, Lowery argued, is going to be key to addressing global warming. But, he said, "Is really the IMF the right place to do that? It strikes me as a little bizarre, and raises a number of significant questions."

Lisa Friedman – ClimateWire
February 5, 2010

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