How to Pay for a Global Climate Deal
Continued from previous page
The IMF is calling for a global stimulus of 2 percent of the world’s total product to sustain global demand in the current economic downturn -- about $1.2 trillion. Less than half of that would cover the projected annual cost of protecting the world’s climate and also provide a stimulus at the same time.
Further, if paper gold is used to stimulate work and production through green public works using material and human resources that would otherwise lie idle, they will create new value at least a great as their own value, forestalling any inflationary effect. Even if there were an inflationary effect, it would affect all countries approximately equally, so that one of the main downsides of inflation – exchange rate volatility -- would not occur.
It is easy to agree in theory that all countries should coordinate their economies to provide their fair share of the needed global economic stimulus, but in practice, they often pursue their own national interests -- or those of their most politically powerful constituencies. That's why national stimulus spending carries a risk. The stimulus will create new spending at home -- but it may primarily benefit the economies of other nations that supply cheap exports and do not stimulate their own economies -- something called a "free rider" problem. Paper gold, however, overcomes this because it stimulates the global economy as a whole, and therefore benefits the global economy as a whole.
As Tom Vosa, head of economic research at nabCapital in London explains, "If one or two countries do fiscal packages, that’s simply going to boost the export market for countries which haven’t." There’s widespread agreement among the world’s biggest countries that the current global financial and economic crises require global solutions, and that's why paper gold is being looked at as a powerful new tool for concerted international action.
How It Can Work
There is one serious problem with using SDRs for climate protection: many believe the IMF has a poor record of environmental stewardship and concern for the poor, and environmental and social justice advocates cringe at the notion of expanding the IMF’s reach into climate territory.
There are two possible solutions. Countries can agree to create an entirely new form of paper gold, such as the "global greenback" proposed by Stiglitz, that does not involve the IMF, but such a reinvention of the wheel is likely to be slow, contentious and impractical. That is why in our current economic and climate emergency, an alternative built on existing mechanisms is necessary, one that would require the IMF to issue SDRs to a global climate protection trust fund overseen by another institution -- such as the United Nations Environmental Program (UNEP).
The UNEP’s authoritative scientific committee, the Intergovernmental Panel on Climate Change (IPCC), could play a major role in setting criteria and evaluating the results. Countries would apply to the trust fund for green paper gold and be allowed to use it solely to implement their national plans to reduce greenhouse gas emissions and honor international climate commitments.
Complete transparency in allocating and contracting would be an ironclad condition for receiving green paper gold. The funds would be allocated based on countries’ need in paying for their own climate protection costs and the importance of their efforts to global climate protection targets. The funds could also be allocated, as Stiglitz has suggested, by competition among countries for the most worthwhile projects.
International climate protection efforts have been stymied by conflict between developed and developing countries over who should bear the cost of mitigation and adaptation, but green paper gold can provide the basis for a "grand bargain" in which climate protection would be an environmental and economic win-win, with poor countries least able to pay at the front of the queue.