How to Pay for a Global Climate Deal
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Editor's Note: This piece was originally published by SolveClimate.
The G-20 summit convening in London on April 2 is preparing to create a quarter trillion dollars of brand new stimulus money to help poor countries battle the global recession.
World leaders plan to use a little-known form of global currency to pay the freight, a currency known technically as "Special Drawing Rights" (SDRs) but often referred to as "paper gold." It’s a currency that can be issued by the International Monetary Fund (IMF), and the Telegraph has reported that the U.S. government is keen on the idea.
Senior figures in the U.S. Treasury have been encouraging the Fund to issue hundreds of billions of dollars worth [of SDRs] to prevent the recession from turning into a global depression.
If leaders at the G-20 summit can create "paper gold" to jump-start the global economy, they can also turn it in a green direction to jump-start protection of the global climate.
They should put much of paper gold stimulus under discussion into an international fund, to help developing countries pay for climate protection. Such an action would remove the greatest stumbling block in the way of international climate action -- the lack of financing to pay for energy conservation, technology transfer, adaptation, forest conservation, clean energy, and research and development. It would allow negotiators to arrive in Copenhagen for climate talks at the end of the year with the finances in place to negotiate and sign a global deal.
Without the financing, the chances of success in Copenhagen are slim. Yves De Boer, the UN's climate chief, left no doubt about that in comments he made this week criticizing EU finance ministers for putting conditions on financial help for developing countries, contrary to promises made in Bali in 2007:
I think without clarity on finance from industrialized countries there will be no commitment from developing countries.
"Paper gold" offers a way out of this stalemate -- a way to mobilize resources without either taxing or borrowing. That’s why G-20 leaders are proposing to issue a quarter trillion dollars worth of new SDRs – and why paper gold can play a crucial role in protecting the climate, too.
Measures that would fight both global warming and global economic meltdown simultaneously are being called a "Green New Deal." At the climate talks in Poznan last December, UN Secretary-General Ban Ki-moon called a "Global Green New Deal" the best chance for securing a climate agreement in Copenhagen in late 2009. And in a February op-ed in the Financial Times, Ban together with Al Gore wrote,
What we need is both stimulus and long-term investments that accomplish two objectives simultaneously with one global economic policy response -- a policy that addresses our urgent and immediate economic and social needs and that launches a new green global economy.
World leaders convening at the G-20 have the opportunity to do just that.
The SDR Backstory
Countries normally set aside reserves, most often in gold and U.S. Treasury bills, as insurance to protect their currencies against speculation, runs, and other forms of economic adversity. If a country’s currency starts to plummet in value, the government can use the reserves to buy back its own currency and stabilize it.
The mountains of U.S. Treasury bills hoarded by China and Japan, for example, were purchased in order to protect their currencies against the kind of runs that devastated national currencies during the so-called Asian financial crisis of the late 1990s. Global currency reserves amount to trillions of dollars, and they currently sit idle in national treasuries.