The impacts of climate change, which include increasingly severe floods, droughts and other natural disasters, threaten the lives and livelihoods of poor people across the globe. In order to avoid irreversible and catastrophic impacts of climate change, developed countries must take the lead in reducing greenhouse gas emissions which are causing climate change. They must also generate significant funding to help poor communities adapt to changing climates, transition to clean energy economies and protect forests.
Developed countries have no excuse to delay action on generating resources to address an urgent crisis. Special Drawing Rights (SDRs) – reserve assets created by the International Monetary Fund (IMF) – are immediately available capital that developed countries can use now for climate action in developing countries. The responsibility of developed countries – those historically responsible for creating the climate crisis – to give funding to support developing countries confront the climate crisis is a central pillar of the negotiations between more than 190 countries within the United Nations Framework Convention on Climate Change (UNFCCC).
During the most recent set of climate negotiations, now taking place in Bonn, Germany, conversations abound as to how to channel and co-ordinate climate finance through the recently-established Green Climate Fund and Standing Committee.
There’s just one problem with these conversations: right now, the prospects of having any significant funding look dim.
Moreover, some developed countries – led by the United States – are refusing to even discuss the fundamental question of how to generate funding to address climate change.
Developed countries have a tool – SDRs – that can be immediately mobilised to support the poorest countries and communities confront climate change. Yet they are neglecting it.
A government can use SDRs to build up reserves at its central bank, which provides an instant credit boost and usually means that a country can borrow on better terms. A country can also convert SDRs into hard currency. SDRs are designed to provide liquidity to the global economic system by supplementing countries’ foreign exchange reserves.
On August 28, 2009, the IMF issued US $250 billion worth of SDRs to its member countries. Because SDRs are allocated to IMF member countries in proportion to quotas, which are based on a country’s relative weight in the global economy, developed countries received two-thirds of the SDRs, or approximately $165 billion. However, developed country governments generally do not need SDRs because they can raise funds on world markets at about the same cost as the SDR interest charge, and because they can already borrow on the open market on good terms. This means that developed countries are sitting on $165 billion that could be used for climate change adaptation and mitigation in developing countries, but instead are standing idle as the poor suffer from the impacts of climate change.
Developed countries should take action to transfer some or all of their SDRs from the 2009 allocation to the UNFCCC Green Climate Fund. SDRs, in their reserve form, could form the capital base upon which the Fund could offer green bonds for clean energy projects, for example. Developed countries should also convert a portion of their SDRs from the 2009 allocation into hard currency to be used for grant financing for adaptation.
Developed countries must start treating the climate crisis with the urgency it deserves. There are numerous mechanisms which can be used to generate resources necessary to help the poorest adapt to climate impacts and reduce their emissions. One of those mechanisms—Special Drawing Rights—can be utilised right now. Inaction is an unacceptable option.