Financing the Fight against Climate Change

In September 2009, the IMF distributed to its members $283 billion worth of Special Drawing Rights, with more than $150 billion going to the 15 largest developed countries. These countries should band together and lend $100 billion of their SDR allocations, which currently sit idle in their reserve accounts, to help developing countries fight the impact of climate change.

COPENHAGEN – It is now generally agreed that the developed countries will have to make a substantial financial contribution to enable the developing world to deal with climate change. Funds are needed to invest in new low-carbon energy sources, reforestation and protection of rain forests, land-use changes, and adaptation and mitigation. But there is no similar agreement on where the money will come from.

The developed countries are reluctant to make additional financial commitments. They have just experienced a significant jump in their national debts, and they still need to stimulate their domestic economies. This colors their attitudes. It looks like they will be able to cobble together a “fast-start” fund of $10 billion a year for the next few years, but more does not fit into their national budgets. This is unlikely to satisfy the developing countries.

I believe that this amount could be at least doubled and assured for a longer time span. Developed countries’ governments are laboring under the misapprehension that funding must come from their national budgets. But that is not the case. They have the money already. It is lying idle in their reserve accounts at the International Monetary Fund. Spending it would not add to any country’s fiscal deficit. All they need to do is to tap into it.

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