Last month, from Bangladesh to Kenya to Washington DC, over 40,000 activists in nearly 20 countries hit the streets calling on banks, governments and financial institutions to “#FixTheFinance” pushing the planet to the brink. 

It’s clear that we can’t address the climate crisis unless we fix the finance flows that are failing the planet. When we know that we have hardly any time left to avoid runaway climate breakdown, it’s absurd that so much of the world’s money is still being poured into fuelling climate change, while barely any is going to the solutions. 

Let’s face it – the climate crisis is really about money, and our choices to use it and make it in really stupid ways.  

G7 offers tepid response to appeal for “bolder” climate action

Many of the world’s most powerful private banks are holding their Annual General Meetings over the next weeks. Banks like Barclays, HSBC and Citibank are pumping billions into fossil fuel expansion, knowing full well that their decisions directly lead to climate chaos and devastating local pollution, particularly for communities in Africa, Asia and Latin America. At their AGMs they will undoubtedly celebrate their profits, self-congratulate on miniscule policy tweaks, and try to ignore the clamour of climate criticism.   

ActionAid research last year showed that these banks are financing an astonishing amount of fossil-fuel and industrial agriculture activities in the Global South, causing land grabs, deforestation, water and soil pollution and loss of livelihoods – all compounding the injustice to communities also getting routinely hit by droughts, floods and cyclones thanks to climate change.  

HSBC, for example, is the largest European financer of fossil fuels and agribusiness in the Global South. Barclays is the largest European bank financier to fossil fuels around the world. And Citibank is the largest US financier of fossil fuels in the Global South. The banks have so much power, and so much culpability, much more than most people realise. But they want us to forget the fact that they are working hand in hand with, and profiting from, the industries that are wrecking the planet.  

The banks can actually turn off the taps. They can end the finance flows that are fuelling the climate crisis. So to avert catastrophic climate change, the fossil-financing banks must start saying no to the corporations destroying the planet.  

But it’s not only private finance that is flawed – public funds are being misused as well. Governments are using far more of their public funds to provide subsidies or tax breaks for fossil fuels and industrial agriculture corporations, than they are for climate action. This is ridiculous – it’s hurting the planet, and its hurting people.  

Public funds instead need to be redirected towards just transitions that address climate change and inequality.  

There is growing appetite for climate action. But this just isn’t yet matched by willingness to pay for it. Or even to stop profiting from climate destruction. 

COP29 finance goal

This year’s COP29 climate talks will be a critical test of rich countries’ commitment to securing a liveable planet. The world’s poorest countries are already bearing the spiralling costs of a warming planet. So far they have only received begrudging, tokenistic pennies from the rich polluting countries to help them cope. The offer of loans instead of grants in the name of climate finance is just rubbing salt into the wounds. 

If we want to unleash climate action on a scale to save the planet, rich countries at COP29 will need to agree a far more ambitious new climate finance goal based on grants, not loans. 

Because if we want to save our planet, we will actually need to cover the costs. 

Tensions rise over who will contribute to new climate finance goal

Last month the International Monetary Fund and the World Bank held their Spring meetings in Washington DC. These institutions are powerful symbols of the planet’s dysfunctional finance systems which urgently need fixing. The World Bank is financing fossil fuels yet being extremely secretive about it. The IMF is pushing climate-devastated countries deeper into debt that often requires further fossil extraction for repayment.

Even as they brand themselves as responsible channels for climate finance, the world’s most powerful financial institutions are pushing our planet to the brink. Their stated aim to get “bigger and better” really amounts to all-out push to get “bigger” but only token tweaks to get “better”.  The Spring meetings ended with business-as-usual backslapping. But if they were taking climate change and its consequences seriously, at the very least, the IMF and World Bank would stop financing fossil fuels and cancel the debts that are pushing climate-vulnerable countries into a vicious cycle.  

Will blossom of reform bear fruit? Spring Meetings leave too much to do

All of these finance flows need fixing. At the moment, the global financial system is better designed to escalate – rather than address – climate change, vulnerability and inequality. The activists, youth and frontline communities who filled the streets last month hope that their calls to stop financing destruction will be heard in the boardrooms and conferences on the other side of the world. 

They say that money talks. This is the year that the climate movement is going to make sure it listens.  

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The finance ministers of Brazil and France pushed this week for a tax on US-dollar billionaires of at least 2% of their wealth each year, with the $250 billion it could raise going to tackle poverty, hunger and climate change.

Brazil’s Fernando Haddad and France’s Bruno Le Maire promoted their proposal at the Spring Meetings of the World Bank and International Monetary Fund (IMF) in Washington, alongside IMF head Kristalina Georgieva and Kenyan finance minister Njuguna Ndung’u.

“In a world where economic activities are increasingly transnational, we have to find new and creative ways to tax these activities [and] thus direct the revenues to common global endeavours such as ending hunger and poverty and fighting climate change,” said Haddad.

He called on world leaders to show “political courage”, embrace “innovative solutions based on evidence” and give their people “hope”. “Without courage, there’s no good politics that can be done,” he said.

Speaking next at a briefing in Washington, Le Maire said overhauling the taxation system was “a matter of efficiency and a matter of justice”, and that a levy on the super-rich should follow already-agreed measures for a digital tax and global minimum corporation tax. “Everybody has to pay his fair share of taxation,” he added.

Canadian minister vows to fight attempts to weaken plastic pollution treaty

French economist Gabriel Zucman is drawing up a proposal for a billionaires tax that will be presented to G20 finance ministers and central bankers when they meet in the Brazilian city of Rio De Janeiro in July.

Haddad, whose government will host that meeting as G20 chair, said he wanted the Group of 20 big economies to issue a statement of support. Le Maire said he hoped the wealth tax would be in place by 2027, ten years after reform of the international taxation system began.

But at a separate press conference in Washington this week, Germany’s finance minister Christian Lindner rejected the proposal. “We do not think it is suitable,” he said. “We have an appropriate taxation of income.” Lindner is from the free-market Free Democratic Party, part of Germany’s governing coalition with the centre-left and Greens.

Who will spend it?

Zucman said not all countries needed to agree to a measure for it to be implemented. If some countries don’t tax billionaires, others can tax them more to make up for it, he said, adding that is how the global minimum corporation tax rate of 15% – which went into effect this year – works.

While Haddad spoke of tackling hunger and climate change, it is not yet clear who would be in charge of spending the money raised from billionaires or what it would be spent on.

Esther Duflo in 2009 (Photos: PopTech)

Esther Duflo, another French economist who addressed G20 ministers this week, told journalists the money should be given to developing countries to deal with climate change.

The best use, she said, is for the money to go to poor people before a climate shock like a heatwave hits, for their communities to protect them through measures like air-conditioned public spaces, and to governments for reinsurance against climate disasters.

From academia to politics

A billionaires tax has long been pushed by progressive economists like Zucman and Joseph Stiglitz. But it has been taken from academia onto the political agenda by the G20 presidency of Brazil’s left-wing government led by President Luiz Inácio Lula da Silva and Haddad.

Zucman presented the proposal at a G20 finance ministers meeting in  Sao Paulo in February. It was the “first time these issues of inequality, progressive taxation [and] extreme wealth concentration were discussed in such a forum”, he said, adding that the “vast majority praised Brazil for putting those issues on the agenda”.

The main barrier, he said, is that billionaires will fight back against it. “They have a particular hatred for any kind of tax based on wealth. Why? Because that’s the one tax that really works for them,” he said.

Gabriel Zucman speaks at the World Economic Forum in Davos last year (Photos: World Economic Forum)

But E3G analyst Sima Kammourieh, a former economic adviser to the French government, was more pessimistic about the prospect of a billionaires tax being implemented. She “wouldn’t completely rule it out, but it’s something which could take many many years to come to fruition”, she said.

Although Zucman insisted the tax could go ahead without the US on board, Kammourieh warned that a Donald Trump victory in the US elections in November would be damaging. Joe Biden has called for higher taxes on billionaires, while Trump is one of the world’s nearly 3,000 billionaires.

Elsewhere at the Spring Meetings in Washington this week, France, Kenya and Barbados launched a taskforce to examine how to fill the gap in climate finance for developing and vulnerable countries – excluding China – which will need investment of $2.4 trillion per year by 2030, according to economists Vera Songwe and Nicholas Stern.

The taskforce will consider taxes on wealthy people, plane tickets, financial transactions, shipping fuel, fossil fuel production and fossil fuel firms’ windfall profits. It will also mull redirecting state fossil fuel subsidies to a new global loss and damage fund and windfall taxes on fossil fuel producers when prices are exceptionally high.

The plan is for one or more proposals to be presented to governments with the aim of securing international agreement at the COP30 UN climate summit in Brazil in late 2025.

(Reporting by Joe Lo; editing by Megan Rowling)

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Many countries in the Global South are burdened with huge public debts. These rising debts are a drain on public resources that are urgently needed for sustainable development programmes, and further pressure Southern governments to prioritise debt service over climate actions. 

Global South countries allocate more funds for debt service – 65% in lower- income countries and 14% in lower-middle-income countries – than their combined budgetary spending for education, health and social protection.  

Included among the public debts of Global South countries are those from projects tainted with fraud and whose negative impacts on people, economies and the planet far outweigh the benefits, if any. Furthermore, many debts arose from projects that did not involve democratic consultations nor the free, prior and informed consent of affected communities including indigenous peoples. Prime examples of these debts are those arising from or related to fossil fuel projects. These debts should be seen and treated as illegitimate.   

World Bank climate funding greens African hotels while fishermen sink

For several decades, international financial institutions and public finance institutions have lent hundreds of billions of dollars to Southern governments to support fossil-fuel energy projects. Many of the loans extended by the World Bank, Asian Development Bank (ADB), and other public finance institutions such as the Japan Bank for International Cooperation (JBIC), remain part of the current outstanding public debts. 

There is already a clear consensus among governments and many public financial institutions that fossil fuel energy – from its extraction, production and consumption – is the main driver of climate change.  

This is evidenced by outcomes from the Conference of Parties (COPs) summits of the UN Framework Convention on Climate Change, calling for the phase-out or transition away from fossil fuels, as well as outcomes from G7 and G20 summits committing to the phase-out of fossil fuel subsidies. Individual governments including China and Korea, have announced decisions to stop their financing of overseas coal projects. Further evidence is in the decisions made by public financial institutions to stop or phase out financing of coal and fossil fuels.   

These decisions, commitments and policy shifts should be taken as acknowledgement of their co-responsibility in the promotion of fossil fuels and the harms fossil fuel projects have caused to people, communities, the environment and climate systems. 

Owning up to their co-responsibility for fossil fuel projects and their impacts, and consistent with their avowed commitments to combat climate change, governments and public financial institutions, including international financial institutions, should cancel all outstanding public debts that arose from fossil fuel projects. These outstanding debts may be transformed into grants for renewable energy systems.  

UN climate chief calls for “quantum leap in climate finance”

The same can be said for private banks, financial and investment institutions and corporations that have lent money to governments for fossil fuel projects. Many have also recognised fossil fuels as the main drivers of climate change and have shifted their policies towards reducing or phasing down their lending and investments in coal and fossil fuels.   

From April 17 to 19, the IMF and the World Bank (IMF-WB) will hold their Spring Meetings in Washington D.C. These meetings take place amidst an ever-worsening debt crisis, most harshly felt by 3.3 billion people living under governments that spend more on interest payments than education or health.  

Bankruptcy risk from climate spending  

A new report released on the eve of the meetings found that developing countries will pay a record $400 billion to service external debt this year. It said climate spending could bankrupt developing countries due to huge debt costs and called for debt forgiveness for those most at risk. The report from the Debt Relief for Green and Inclusive Recovery Project (DRGR) warned 47 developing nations would reach external debt insolvency thresholds in the next five years if they invested the necessary amounts to meet the 2030 Agenda and Paris Agreement goals.

Spring Meetings can jump-start financial reform for food and climate

It is deplorable that the IMF-WB continues to push loans as the solution to multiple crises facing developing countries, including loans for climate action. At the height of the COVID-19 pandemic, when financial resources were most urgently needed, they supported and promoted the debt relief schemes of the G20 and Paris Club for the mere postponement of debt payments. These have all but proven flawed and futile. The suspended payments fall due in 2025 – by which time debt accumulation will have sped up even more. Private and commercial lenders, who now hold over 60% of sovereign debt, remain free to refuse participation in debt reduction. 

Total public debt, domestic and external, reached $92 trillion in 2022, increasing five-fold since 2000. Southern governments account for almost one-third of the total debt and are accumulating debt much faster than their richer counterparts. The number of countries with public debt levels exceeding 60% of GDP continues to rise, from 22 in 2011 to 59 in 2022. The long-term public external debts alone of low- and middle-income countries, excluding China, amount to a staggering $3.3 trillion. 

The consequences of World Bank projects, coupled with IMF neoliberal, policies have been devastating for vulnerable communities in the Global South. Large-scale infrastructure projects financed by the World Bank have led to displacement of communities, loss of livelihoods and destruction of ecosystems, and in the process, deepened inequality and impoverishment. Its fossil fuel subsidies and project loans impacted communities already struggling to survive economic hardships and environmental degradation. It also continues to subsidise the fossil fuel industry through direct and indirect financing, estimated at $885 million in 2022 and at least $194 million in 2023.  

The World Bank and the IMF, now in their eighth decade of committing to fight poverty, have yet to account for loans that are clearly illegitimate and must be canceled outright, nor for harsh loan conditionalities that have deepened inequality and impoverishment.

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Set against the global backdrop of poverty, hunger, climate change, debt and conflict, it can feel hard to be hopeful at present. But there is a real win-win opportunity – as well as a deep moral obligation – to heal geopolitical divisions, foster peace, alleviate poverty, ensure food and nutrition security, address the climate crisis, and deliver a better, fairer future for people and planet. It lies in the reforms of the global financial architecture necessary to deliver the additional sum of at least $3 trillion required to support countries to meet the Sustainable Development Goals and the Paris Agreement on climate change.

Last year’s international meetings in Paris and Nairobi – leading to the Paris Pact for People and Planet, and the Nairobi Declaration – have made the case for debt relief, enhanced international taxation and global financial architecture reform. These reforms will be centre-stage at next week’s Spring Meetings of the World Bank and the IMF in Washington DC.

Here the world must urgently come together to articulate and deliver a clear plan for how to end hunger and build resilient food systems, backed by real leadership, enhanced coordination, accountability and finance. The task at hand is to connect the global imperative to act on food security, sustainable agriculture and malnutrition with the broader efforts underway to drive a reform agenda and to replenish the World Bank’s concessional lending arm, the International Development Association (IDA).

At UN climate talks in Dubai last year, 159 world leaders committed themselves to action on food security and climate change by signing the COP28 Emirates Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action – the first of its kind. The commitments in this declaration now need to be linked with the emerging global plan for increased finance.

Is water provision in drought-hit Zambia climate ‘loss and damage’ or adaptation?

African potential

Africa is ground zero for the climate crisis, but is also the continent where solutions will have the most impact. Of the 9.8 billion people expected to live on the planet by 2050, a quarter will be African. Financial reforms must unlock climate-positive green industrialization and transform food systems across the continent in a way that is compatible with sustainable and inclusive economic growth. But the ultimate test will be whether the funds released reach the communities who need them most, when they need them, producing the desired results of ending poverty, building climate-resilient infrastructure, saving nature and biodiversity from extinction, and delivering prosperous lives for all.

This goal is within our reach – with evidence and farmers’ testimonials showing the success of innovative models such as the Arcos community-led scheme in Rwanda, which has empowered smallholder farmers to preserve and restore forests and agricultural landscapes. To date, 12,000 community members have grown 4.2 million trees, including fruit trees for boosting income and nutrition, nitrogen-fixing species to improve soil health, fodder species for livestock and indigenous species for biodiversity, on more than 20,000 hectares. The farmers have also built terraces across the hilly landscapes to reduce soil erosion and prevent pollution of lakes and rivers.

Nigeria’s path to net zero should be fully lined with trees – and fairness

Across much of the Global South, there are numerous such inspiring examples of where communities and societies have established social safety nets, fostered rural development, and promoted gender and social equity. These approaches have enhanced  communities’ capacity to plan for and respond to more extreme weather, to continue to deliver their crops to market despite climate change and other challenges, and to provide nutritious food for their families.

Smallholder farmers produce a third of the world’s food, yet receive only 1.7 percent of climate finance. Globally, there must be a major shift in financial flows to change that, including efforts by international development partners such as the World Bank and the philanthropic sector. National government leadership is a prerequisite to success, including revising agricultural subsidy programs to ensure they incentivize farming practices and behaviour that will help the world close the hunger gap while reducing greenhouse gas emissions, protecting biodiversity and restoring degraded lands.

Global momentum growing

This year there is a golden opportunity to make progress on financing for food systems. As a result of consistent advocacy – including from Barbados Prime Minister Mia Mottley, Kenyan President William Ruto and World Bank President Ajay Banga – an additional $300–400 billion in low-cost concessional finance and lending has been promised over the next decade by the multilateral development banks (MDBs) to low- and lower-middle income countries.

This recalibration of the international finance institutions’ balance sheets is a welcome development to build on – and demonstrates that climate and development commitments can be honoured. The social, economic and environmental case for making these kinds of investments in food security is unequivocal. Well-designed investments deliver four-fold benefits: they strengthen food security and nutrition; reduce greenhouse gas emissions; support nations and communities to adapt to a changing climate; and protect and restore nature.

The Brazilian government has committed to put zero hunger, sustainable agriculture and food systems centre-stage at the G20 this year, through its Global Alliance Against Hunger and Poverty, and has committed to work closely with Italy and the rest of the G7 on this agenda. President Lula has also rightly placed the ongoing deeper reboot and replenishment of the multilateral development bank system at the heart of his G20 agenda. His leadership – in partnership with African governments and the G7, and harnessing such key moments as the UN Summit for the Future – could drive major progress at this critical time, starting at the Spring Meetings this April.

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The green policy aims to boost both climate action and the heavily-indebted Zambian economy, but taxi drivers in Lusaka, the southern African country’s capital, told Climate Home they are suffering from rising prices for driving and food.

“We have been hit hard,” said 29-year old Masuzyo Kampamba, as he motored down a two-lane highway towards past crowds of children celebrating national youth day last month. 

Kampamba doesn’t feel able to get married and start a family as he would not be able to provide for them due to the high cost of living.

Waiting outside the upmarket East Park Mall, driver Stephen Musanda said he is struggling too. 

Filling up his regular Toyota taxi used to cost 17 kwacha ($0.70) a litre – for which he now pays 31 kwacha ($1.30). “It’s hard for a common driver like me to survive,” he said.

A Total petrol station near Lusaka’s Central Business District on March 10, 2024 (Photo: Joe Lo)

IMF’s global push

In debt-strapped developing countries like Zambia, the International Monetary Fund (IMF) is using its financial power to push for the removal of fossil fuel subsidies. Similar IMF-backed policies in Haiti and Ecuador have led to mass protests in the last few years.

At the Cop28 UN climate summit last December, governments agreed to contribute to a global effort to transition away from fossil fuels “in a just, orderly and equitable manner”. What that means in practice is still being worked out.

In Zambia and other places like Nigeria, many ordinary citizens feel the shift away from fossil fuel subsidies has not been done fairly so far, with the burden falling on those who cannot afford it. Even supporters of the reforms in Zambia admit they are “painful”.

On a global level, the IMF argues that subsidies incentivise the use of fossil fuels like oil and gas, making climate change worse, while also being expensive, wasteful and skewed towards helping the rich more than the poor.

My message at today’s @wef session on climate and nature: pull back on harmful fossil fuel subsidies and use those resources for climate action. With action, we can leave a heathy planet to our children and grandchildren. #wef24 pic.twitter.com/Uh7TcyafHI

— Kristalina Georgieva (@KGeorgieva) January 17, 2024

In a bid to boost sustainable development, the Washington-based lender has encouraged governments to spend the savings from reducing their support for fossil fuels on climate action, healthcare or education. Zambia has used the money it has freed up for paying down the national debt and making public schools free.

Richard Bridle, a subsidies expert at the International Institute for Sustainable Development (IISD), generally supports such reforms, but said proper analysis must be carried out to identify those most affected and compensate them.

“Generally, the poor don’t have cars,” he said, but there are “particularly affected groups” whose business costs are exposed to fuel prices – like taxi drivers – and they require special attention.

“You’ve got to have steps being taken to understand the impact, particularly on the most vulnerable groups, and – where possible – mitigate that impact,” Bridle said.

Education not petrol

When Zambian President Hakainde Hichilema was elected in August 2021, he inherited $800 million a year of spending on fossil fuel subsidies – 4% of gross domestic product (GDP) – and debt of almost $1 billion which the government was failing even to pay interest on. 

He turned to the IMF for another loan – and in December 2021, Zambia was granted a $1.4-billion extended credit facility. 

Announcing this credit, the IMF’s then mission chief for Zambia, Allison Holland, said the conditions were that Zambia should cut what the IMF sees as “inefficient” subsidies, reduce its debt level, and increase spending on education and health. 

ZAMBIA’S #IMF PROGRAMME: Message from the IMF Mission Chief for Zambia, Ms. ALLISON HOLLAND.@S_Musokotwane @KGeorgieva @IMFAfrica pic.twitter.com/j17kCKck8t

— Ministry of Finance & National Planning – Zambia (@mofnpzambia) September 4, 2022

The IMF sees subsidies as “inefficient” if they hinder economic growth, exacerbate air pollution and climate change, and benefit those with high incomes. Holland said fuel subsidies were an example of spending that is “wasteful” and “doesn’t help the poor”.

In response, the government completely removed direct fossil fuel subsidies for 2022 and, in October that year, it restored taxes on petrol and diesel which the previous government had cut.

Hichilema also announced that public school education would be made free from January 2022. “When we removed fuel subsidies, this is what we intended for our people,” he said in a post on X, formerly known as Twitter.

Ever imagined that you’d be entering January without worrying about school fees? Jan 2022, if you have a child in public school, you won’t pay anything.
This is what we promised & have delivered. When we removed fuel subsidies, this is what we intended for our people. #Zambia pic.twitter.com/b49D9CTigV

— Hakainde Hichilema (@HHichilema) December 29, 2021

The government is planning to boost spending on social protection too. In 2020, it spent just 0.7% of GDP on welfare programmes like giving money and food to poor people, but by 2025 it plans to raise this to 1.6%, bringing it in line with the African average.

“Overall, for low-income households, the benefits from increased social spending should outweigh the impact from the removal of fuel and electricity subsidies,” a 2022 IMF analysis said.

Painful but necessary

During a reporting trip this March, Climate Home asked Zambia’s environment minister, a farmer and a rural teacher about the fuel subsidy cuts. All said the measures had been painful, making driving, farming and eating more expensive – but they saw them as necessary.

Green economy and environment minister Collins Nzovu said “there is going to be pain” from removing subsidies, but asked “were we going to keep accumulating debt or we’re going to say this is where we end?” 

In the village of Katoba in Lusaka province, secondary school teacher Constancy Mbwenya said spending on subsidies had previously diverted money from health and education.

The subsidy cuts are “a good policy”, he said, but required a period of adjustment. “People need to acclimatise to the new situation,” he explained. “That’s where the hassle is a bit, but then eventually people will understand the importance of removing the subsidies.”

Is water provision in drought-hit Zambia climate ‘loss and damage’ or adaptation?

At the steering wheel, Musanda and Kampamba welcomed free education – although they questioned whether there are enough teachers per pupil, and whether the children can afford to eat at home because of food inflation.

“It’s right because those who were not going to school… are now going to school,” said Musanda. But, he added, “it is difficult for us who used to survive on subsidies”.

IISD’s Bridle compared the situation to France’s “gilets jaunes” (yellow vest) protests, sparked in late 2018 when the French government tried to hike taxes on petrol and diesel and spend the money on climate action. 

The rural working class felt the costs of green policies were falling unfairly on them, while they failed to see direct benefits, Bridle said. The large-scale opposition to the policy forced the government into a U-turn and hurt the popularity of French President Emmanuel Macron.

Taxi driver Musanda said similar social unrest was unlikely in Zambia: “We are not used to doing protests.” Instead, many voters might look to bring in a new government at the country’s next elections in 2026, he noted.

According to Bridle, that risk is why governments often rush through reforms well ahead of the next election. 

In Zambia, less than one in 20 people own a vehicle, so the vast majority are less affected by the subsidy increase than Musanda.

Corn and peanut farmer Benson Chipungu poses in his field on March 7, 2024 (Photo: Joe Lo)

Benson Chipungu, who spoke to Climate Home on his maize and peanut farm in Chongwe village, 50 km east of Lusaka, said it now costs him more to fill up his tractor with diesel – but he is willing to accept the change nonetheless.

“I think it’s fine because [the government] has made that decision knowing that maybe the subsidies were being a burden on the economy,” he said. “It can be painful – but if… they think it’s going to come out right, then it’s fine – you can try to hang in there.”

Travel for this story was funded by Catholic Relief Services.

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Yellen hosted talks with global finance officials to discuss an initial spate of balance sheet changes that will allow the World Bank to lend an additional $50 billion over 10 years while maintaining its top-tier AAA credit rating, and how to deepen those efforts with it and other multilateral development banks.

Yellen said the changes already approved had sharpened the mission of the World Bank, but more “bold action” was needed to ensure it could work to end extreme poverty, boost shared prosperity and better meet 21st century challenges like climate change, fragility and pandemics.

What’s at stake for climate at the World Bank’s spring meeting?

“We should use the rest of the year to undertake additional reforms through a staged implementation approach that can be agreed upon by the Board and implemented on a rolling basis.”

Climate change demonstrators carry a mock oil pipeline during a “Stop Fossil Gas” protest outside of the 2023 IMF-World Bank meetings in Washington, D.C. on April 12, 2023. (Photo: Reuters/Bryan Olin Dozier/NurPhoto)

Major milestones

The bank’s steering committee – officially known as the Development Committee – met later in the day, where members welcomed the bank’s “Evolution Roadmap” and said they looked forward to additional efforts aimed at achieving “major milestones” by the October annual meetings of the World Bank and International Monetary Fund.

“They expect the Board of Executive Directors and World Bank Group management to finalize a work plan with detailed actions to be taken,” the committee’s chair said in a statement.

Members underscored their commitment to “ensuring that the World Bank Group has adequate financial capacity to respond to development challenges and support its expanded mission.”

World Bank’s private sector arm to stop supporting new coal

They called for ambitious approaches to increasing private capital, facilitating investment and leveraging the public sector.

The members also looked forward to exploring additional recommendations made by an independent panel last year, including making the bank’s emerging markets database more accessible to private investors, optimizing the balance sheet for the low-income lending arm, and exploring a voluntary channeling of IMF Special Drawing Rights.

Momentum ahead

Yellen said upcoming events could be leveraged to keep momentum strong for the evolution of the World Bank. Those included the Summit for a New Global Financial Pact to be hosted by France in June, the Group of 20 Leaders’ Summit in India in September, the annual meetings of the World Bank and IMF in Morocco in October, and the United Nations COP28 climate conference to be held in Dubai in November and December.

“We’ve all seen how threats to global health can disrupt entire societies and economies, and how fragility and conflict can lead to significant displacement and migrant flows,” she said.

She said Ajay Banga, the U.S. nominee to replace World Bank President David Malpass, who will step down on June 1, was “the right leader to take the baton from President Malpass and accelerate our work to evolve this institution.”

Malpass told the committee he felt the bank had responded with “vigor and speed” to Yellen’s call for reforms.

“There was … wide recognition that progress toward these goals requires a sharper focus on sustainability, resilience, and inclusiveness as part of our mission,” he said.

Development Committee members thanked Malpass for his leadership of the WBG during a historically challenging period, including an unprecedented surge in financing in response to multiple crises.

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The multi-million-dollar finance packages vary for each country, from $183 million for Barbados to $1.4 billion for Bangladesh, and recipients have different ideas of how they will spend the money.

The RST fund, set up last year, was aimed at redistributing affordable finance from rich to poorer countries, along with policy support to manage macro-economic climate risks. The IMF believes it can also catalyse essential private sector financing to boost climate action and to decarbonise financial markets.

Experts hailed the move as “pivotal” in helping vulnerable nations address the triple crises of debt, Covid and climate change, and said it could fill a gap in climate finance architecture.

Commenting on Jamaica’s $764 million agreement, Bo Li, deputy managing director and acting chair of the IMF board, said the funding would create incentives to “switch to renewables, reduce energy consumption, develop green financial instruments, and require proper management of climate risks in the financial sector”.

US backs Ajay Banga to lead World Bank in climate fight

But there was concern that the strings attached would exclude many nations in need. Countries need to show they can repay the loan to the IMF, present a package of policy measures for how they would use the support, such as carbon-cutting and adaptation measures, and already have a programme of policy reforms with the IMF.

‘Major accomplishment’

Ronan Palmer, clean economy director for think-tank E3G, took “great heart” from the fact that RST money had so far been approved for a diverse range of countries, including fossil producers such as Barbados, and countries at significant physical risk from climate change such as Bangladesh.

“This shows that the trust does have capacity to reach across the issues in climate,” he said.

He said Jamaica’s loan could help protect it against climate risk “so vital in a country at increasing risk of Caribbean storms” and its economy from the risks of transition.

“A small economy like Jamaica will be very exposed to the kind of price and exchange rate pressures that could come as the world moves on from fossil fuels, or changes production patterns, [for example] in the shift to EVs from internal combustion engines.” 

John Hicklin, non-resident fellow of the Center for Global Development and a former senior IMF official, wrote in a blog that getting this far was a “major accomplishment”.

But he said the conditions built into the loans would not necessarily help in their aim of helping countries become more resilient to external shocks and grow sustainably.

Austerity measures

Anaitee Mills, a sustainable development expert who helped develop Jamaica’s disaster risk financing policy, said the approval of that policy was one of the milestones it had to achieve to be able to draw money from the RST.

Other conditions, such as liberalising domestic power sectors or imposing strict public spending austerity measures, are more problematic.

Lara Merling, senior policy advisor at Boston University’s Global Development Policy Center, said the RST does not resolve existing structural problems with IMF funding. According to its own report, only about a third of IMF programmes are ever completed.

“All of these programmes are fiscal consolidation, austerity-based programmes,” said Merling. “So it’s not exactly the type of programme that creates an environment that’s favourable to more investment and climate investment.”

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The IMF hoped to lend $30 billion initially through the RST, increasing to $50 billion in the medium term. The first five packages approve about $3.4 billion of loans.

As of the end of February, however, no money had yet been disbursed, because it is contingent on the completion of other IMF programmes.

One expert told Climate Home News there had been low uptake for the RST so far because it had not been designed with the interests of the countries that really need it. It is not available to those without existing IMF programmes and the quota system means smaller countries have little to gain.

Furthermore, it can add to the underlying debt burden. This, the IMF itself recognises, exacerbates a country’s vulnerability to climate impacts because “debt problems reduce fiscal space for climate mitigation and adaptation investments”.

‘Vicious cycle’

A recent UN Conference on Trade and Development (UNCTAD) report warns against “a vicious cycle of perpetual vulnerabilities and economic stagnation” across indebted economies on the front lines of climate change, saying the two issues have to be tackled in tandem.

Merling said it was not clear how the fund would be evaluated in terms of climate resilience.

She noted that some countries have detailed ideas of how they will spend the money. Costa Rica, for example, plans to issue guidelines for climate budget tagging so that it can better integrate climate risks into its fiscal planning.

By comparison, Rwanda and Barbados refer to vaguer World Bank country climate development recommendations.

“No one will be upset about the idea of having cheaper long-term loans and climate is macro critical,” said Merling. “But how are they actually going to follow this type of conditionality and know if it really helping or not?”

Building global resilience

Critics also note that the sums involved are a drop in the ocean when compared to the huge amount required to build global resilience. UNEP estimates $340 billion will be needed every year for adaptation, but only about 7% of climate finance flows are currently spent in that direction.

Merling believes it is not enough for the IMF to sideline climate into one discrete fund, adding that all economic policy measures must allow countries to invest in climate resilience and emissions reductions.

“You can’t really have this little climate fund on the side and then in your main projects and operations just ignore climate or do things that leave countries behind from being able to finance their transition,” she said.

Centre for Economic and Policy Research (CEPR), a liberal Washington-based think tank, has a bolder suggestion to reform the IMF; give more decision-making powers to countries most affected by climate change and those that contributed least to the problem.

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Ahead of last weekend’s G20 finance ministers summit in India, IMF boss Kristalina Georgieva wrote in a blog that there are “signs of progress, as major economies realign their fiscal frameworks to accelerate the green transition.”

“But policies should stay focused on that transition—rather than providing a competitive advantage to domestic firms,” Georgieva noted.

She continued to write that policies should “be carefully designed to avoid wasteful spending or trade tensions, and to make sure that technology is shared with the developing world”.

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In the Indian city of Bengalaru, finance ministers from 20 of the world’s biggest economies agreed to “fight protectionism” – a commitment they make at the summit almost every year.

Subsidy race

The US’s recent Inflation Reduction Act gives a subsidy of of $7,500 to anyone buying an electric vehicle in the US. But that vehicle must have been assembled in North America.

This condition has angered other car-making countries who see it as an unfair attempt to get car companies to relocate to the US.

The European Union, the United Kingdom, Japan and South Korea have all complained to the US government.

In response, the European Union is considering loosening its rules to allow governments to provide more subsidies for electric vehicle manufacturers.

Can’t compete

But, like Georgieva, campaigners and analysts from developing countries raised concerns over these measures.

Fabby Tumiwa, head of the Indonesian think-tank Institute for Essential Services Reform, told Climate Home that developing countries need to access green technology and investment to compensate for the declinine of polluting industries like coal mining.

But, he said, they “have very limited capacity” to compete with rich countries’ incentives and subsidies.

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Tumiwa said emerging economies can only retaliate by imposing policies to limit exports of raw materials and process them domestically.

“What rich countries must do is to provide access for emerging economies to acces the technology and it will be better if they can participate in the global supply chain for green technology”, he said.

Double standards

Avantika Goswami, from the Delhi-based Centre for Science and Environment, said that in general green subsidies can spur research and development and deployment of green technologies.

But, she said, the risk is that global inequalities are deepened if companies move their manufacturing back to rich countries. That could hurt developing countries’ economies through decreased export revenues or foreign investment, she said.

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She said that developing countries should be able to provide incentives for domestic industry without being accused of protectionism.

“The developed world already bends the rules of free trade to suit its national interests”, she said.

Border tax

Faten Aggad, climate diplomacy adviser for the African Climate Foundation, said that some of the measures “introduced in the name of climate are essentially protectionist”.

She cited the European Union’s carbon border tax which aims to tax the emissions of imported carbon-intensive products like steel, aluminium and fertiliser.

The EU claims it will stop European industry moving to places with less environmental regulations but major economies like China, India and South Africa say it will unfairly penalise their economies.

“First step”: Reformers react to World Bank plan to free up climate spending

The Africa Climate Foundation will soon release a report which suggests Africa will lose $16 billion a year because of the tax, she said.

Trade disputes

She added that developing countries depend on access to green technology from Europe, the USA and China and that trade conflicts between these blocks “will only complicate this”.

She said it would be “counter-productive” if these conflicts push countries into having to chose a technology provider “based on ideological alignment rather than cost-effectivness”.

But Beijing-Based Greenpeace campaigner Li Shuo said that competition between major countries on green subsidies and border taxes “is not necesarily a bad thing” as long as the policies are focussed on the green transition.

“In other words, it’s climate change that countries should be fighting, not each other,” he said.

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The leader of one of the world’s smallest nations is working to deliver a new global finance compact for vulnerable countries trapped between financial stress and the inability to prepare for the next climate disaster.

Addressing the UN general assembly on Thursday, Mottley laid out a plan to transform the global finance architecture and make it fit to address the climate crisis. This is neither “idle thought or arbitrary comment on our part,” Mottley told the plenary hall in New York.

In fact, many in the room would have been familiar with what she is proposing. At the end of July, Mottley hosted a retreat in Barbados’s capital Bridgetown to brainstorm solutions and test her ideas.

The retreat was convened with senior UN officials including deputy secretary general Amina Mohammed, the Rockefeller and Open Society foundations, academics and civil society. Canada’s prime minister Justin Trudeau tuned in virtually.

The outcome was the ‘Bridgetown Agenda’ – a set of core messages designed to reform the World Bank and the International Monetary Fund (IMF), institutions set-up at the end of World War II and still dominated by the US and Europe.

Since then, Mottley has embarked on a diplomatic drive to gather support for the movement for reform she began in Bridgetown.

Last week, she travelled to the White House to present the plan to US vice president Kamala Harris. Climate Home News understands that Harris was receptive to some of the ideas.

Today, I met with @VP Kamala Harris, Heads of CARICOM and President of the Dominican Republic Luis Abinader, to discuss and help accelerate the implementation of PACC 2030. Thank you to all. We must continue making the right decisions today, for the sake of our world tomorrow. pic.twitter.com/EYR4BZAtwW

— Mia Amor Mottley (@miaamormottley) September 15, 2022

On the sidelines of the UN general assembly in New York on Wednesday, Mottley presented her case at a leaders’ roundtable on climate action organised by the UN.

The meeting was poorly attended by leaders. There were no heads of governments or delegation from wealthy nations. Instead, representatives for the EU Commission and the US attended. But IMF head Kristalina Georgieva was in the room.

“We can’t pretend day by day that someone somewhere else is going to make that change. This is our time to make that defining difference,” she later told the UN plenary hall.

“And many of the things that are put before us today don’t require money, but they require a commitment and they require political will.”

The plan for reform is based around a new form of internationalism which seeks solutions that transcend national borders, Avinash Persaud, one of Mottley’s closest advisors and the brain behind many of the proposals, told Climate Home.

“The world is not going to progress with country-by-country commitments. It’s going to progress through a global movement and global projects,” he said.

For Mottley and her team, the financial system is failing to provide developing countries with the funds necessary to invest in resilience, address climate change and meet development goals at a time when vulnerable nations are facing soaring debt levels.

Almost 60% of the world’s lowest-income countries were already in debt distress or at high risk of it before the start of Russia’s war in Ukraine, according to the World Bank. Rising costs have made things worse.

Persaud has warned that “a silent wave of financial stress is running through world markets and will soon crash onshore” with widespread consequences.

Meanwhile, climate vulnerable nations from Pakistan to Puerto Rico are facing growing costs to recover from climate disaster and prepare for the next one.

“In order for us to get away from that, we need to secure long-term funding. This must now be the global movement of our time,” Mottley told an event in New York organised by the Bill & Melinda Gates Foundation.

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Mottley launched the ‘Bridgetown Agenda’ on Friday, as she delivered the inaugural Kofi Annan lecture in New York.

The agenda is based around a three-pronged approach.

The first step is to prevent a debt crisis with emergency IMF relief and long-term concessional funding for development, lent over at least 30 years, to prepare for the future.

Money should be available not just “following a disaster, but before a disaster,” she said, citing World Bank research that for every $1 spent on resilience, many lives and $7 could be saved in avoided costs.

This, she said, calls for a greater redistribution of special drawing rights (SDRs), the IMF reserve asset issued as relief during the pandemic, from wealthy nations to those that need it most.

Last year, the IMF injected $650bn in SDRs into the global economy to help countries recover from the Covid-19 pandemic. The IMF created a $45 billion Resilience and Sustainability Trust for rich nations, which received most of the support, to re-channel the funds to developing countries.

Mottley and her supporters are asking for at least $100bn to be redistributed.

Mia Mottley: the ‘fearless’ leader pushing a global settlement for the climate frontlines

The second step is to expand the lending capacity of multilateral development banks to developing nations by $1 trillion to be invested in climate resilience. This includes by allowing the banks to hold SDRs for lending.

The third step is to develop long-term instruments that can mobilise $3-4 trillion in finance for carbon-cutting projects and a mechanism for raising reconstruction grants to help nations rebuild after climate disasters.

Part of the money could come from the IMF agreeing to a new issuance of $650bn in SDRs – a threshold that doesn’t require approval by US Congress.

The next push for Mottley will be the annual meetings of the IMF and the World Bank, which start next month.

As the largest shareholder in both institutions, the US government would need to be on board.

UN chief António Guterres has made clear he backs Mottley’s agenda. Speaking to the press on Wednesday, he called on Washington to “get behind these ideas now”.

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In recent weeks, oil and gas companies have reported bumper profits. BP reported profits of $8.45bn between April and June this year – more than triple the amount it made at the same time last year. Exxon Mobil, Chevron, Shell and Total reaped $51bn between them and returned $23bn to shareholders in dividends and buybacks, according to Reuters.

“This grotesque greed is punishing the poorest and most vulnerable people, while destroying our only common home,” Guterres said during a media briefing on Wednesday. “I urge all governments to tax these excessive profits, and use the funds to support the most vulnerable people through these difficult times.”

The IMF agreed that governments should shield the most vulnerable from price hikes but discouraged broader consumer subsidies.

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Living costs for European households will rise by 7% on average in 2022, the IMF projects, with the poor hardest hit.

Several European governments have used price controls, tax cuts and subsidies to ease the impact of inflation – in some cases funded by windfall taxes.

In a blog post, Oya Celasun, assistant director of the IMF’s European department, wrote that policymakers “should allow the full increase in fuel costs to pass to end-users” to encourage energy savings and moving away from fossil fuels.

“Governments cannot prevent the loss in real national income arising from the terms-of-trade shock,” said Celasun. She added that governments should provide targeted relief for the most vulnerable groups, for example in the form of income support.

Fully offsetting the cost of living increase for the bottom 20% of households would cost governments 0.4% of GDP on average for the whole of 2022. It would cost 0.9% of GDP to fully compensate the bottom 40% of households, the IMF calculates.

“The IMF and UN are both clearly conscious of the need to protect the most vulnerable consumers but they disagree on who should bear the costs of doing so,” Olena Borodyna, a transition risk analyst at ODI, told Climate Home News. 

“Fundamentally, the two have a different position on how to encourage low-carbon transition – the IMF prefers market solutions and wants to incentivise consumers towards energy efficiency. The UN, on the other hand, is siding with the position of climate activists and politicians who are making a moral case for taxing fossil fuel companies amid the cost of living crisis,” Borodyna said.

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“The UN and IMF stances on the energy crisis are refreshingly compatible. We need both: windfall taxes on oil and gas profits; and a shift to policies that subsidise people, not energy,” Chris Beaton, the lead for sustainable energy consumption at the International Institute for Sustainable Development (IISD), told Climate Home News. 

“Energy subsidies are notoriously awful as a way to provide social assistance, disproportionately benefitting the people who buy most oil and gas (typically higher income groups) and locking in wasteful carbon-intensive consumption,” said Beaton.

More effective and fairer policies for tackling energy poverty include swapping subsidy spending into public services such as health and education or providing low-income households with cash transfers, he said. “This empowers people to put assistance into whatever part of their budget they find most useful, and can work as a short-term crisis measure.”

“The IMF might make a good economic point, and governments should not rush to give out blanket support measures to wealthy businesses and consumers that do not need them, but they are completely tone deaf in terms of implications for consumers experiencing the impact of the energy crisis,” Ipek Gençsü, senior research fellow at ODI, told Climate Home News. 

“The problem is that it’s not just the low-income that are currently suffering, it is a much bigger segment of the population. So supporting consumers is easier said than done in the current crisis,” she said.

It is a reminder that the most vulnerable “live at the mercy of price volatility of fossil fuels,” said Gençsü. “The sooner we can move away from use of fossil fuels, and also reduce energy waste, the better… The companies that continue to benefit from fossil fuels at a time when they are leading us to climate disaster, must be the first to help pay for the transition.” 

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The Resilience and Sustainability Trust (RST) aims to help poor and vulnerable middle-income countries build back better from the Covid-19 pandemic. Squeezed by an economic downturn and rising fuel and food prices, many have little fiscal space to prepare for the future.

The V20 coalition of vulnerable nations welcomed the trust, saying it plugs a gap in long-term concessional financing to address the climate crisis – but warned against imposing “prohibitive” conditions. A requirement for countries to already have an IMF programme to qualify for support is one of the most restrictive criteria.

The IMF estimated that 70 countries would approach the trust for support over the next 10 years. That assumption “will be completely out of reach” if the fund imposes such onerous conditions, Rishikesh Ram Bhandary, of the Global Development Policy Center at Boston University, told Climate Home News.

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The RST is a vehicle for wealthy nations to redistribute their IMF pandemic relief, known as special drawing rights (SDRs), to poorer countries in the form of long-term, low-interest loans.

The IMF issued SDRs to its member countries to help them deal with the pandemic. The relief was allocated according to the size of their economies, meaning low-income countries received less than wealthier ones.

In a press release, the IMF said about three-quarters of its members are eligible for financing under the trust. But not every eligible nation will qualify.

To qualify, countries need to show they can repay the loan to the IMF, present a package of policy measures for how they would use the support, such as carbon-cutting and adaptation measures, and already have a programme of policy reforms with the IMF.

Only 45 developing nations have an IMF programme. This excludes some of the world’s most climate vulnerable countries including Vietnam, Bangladesh, the Philippines, Tanzania and Zimbabwe.

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Zimbabwe is one of 23 African countries facing debt distress or at high risk of it. The southern African nation is spending more on servicing its debt than it is on climate and social protection measures, Janet Zhou, executive director of the Zimbabwe Coalition on Debt and Development, told Climate Home.

Because its debt is deemed unsustainable, Zimbabwe isn’t eligible for an IMF programme and doesn’t qualify for support under the RST.

“This is not fair because it is the average citizens that are suffering from the incompetence of authorities,” said Zhou.

A woman working in a face mask manufacturing shop at a factory in Harare, Zimbabwe (Photo: KB Mpofu / ILO/Flickr)

In designing the trust, IMF officials assumed that qualifying for RST support will make it more attractive for vulnerable countries to sign on to an IMF programme.

These programmes are not focused on addressing long-term risks such as climate change but provide financial support to achieve economic stability in the short-term, often involving unpopular austerity measures.

The package of policy reforms a country needs to accept in exchange for financial support makes many countries “hesitant” to accept IMF support in the first place, Bhandary said.

“Perhaps what the IMF needs to understand is that going to the fund is not always seen as an attractive option. It’s not like going to the Green Climate Fund,” he said, in reference to the UN’s flagship climate finance initiative.

Constantino Marrengula, a Mozambican economist at the Eduardo Mondlane University in the country’s capital Maputo, has seen anti-IMF sentiment grow in his country.

At the end of 2021, Mozambique’s debt soared to 112.4% of its GDP. Spending on infrastructure, health and education was halted. There is a shortage of medicines and a freeze on public sector recruitment means health care professionals and teachers are in short supply.

“We are in such a situation that we cannot go without the IMF,” Marrengula told Climate Home, citing an agreement reached between the Washington-based fund and the government. The deal includes plans to create a sovereign wealth fund for revenues from gas development.

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But many in Mozambique believe IMF-imposed policy reforms come at the expense of employment protection and people’s wellbeing, he said. “The losers are small businesses and people who only have their land,” he said.

Sara Jane Ahmed, of the Philippines and a financial advisor to the V20 group of vulnerable nations, told Climate Home that IMF criteria for accessing support from the RST will make it “a tough sell” for many vulnerable countries.

Countries that have undergone an IMF programme in the past “may not want to come back for another at this point,” she said.

The V20 is further concerned that the support, which comes in the form of loans, will deepen cash-strapped nations’ debt issues and have called for the interest payments to be subsidised for the most vulnerable.

“There is an opportunity to improve the usability of the RST, especially if the IMF opens a formal line of communication with the vulnerable countries,” said Ahmed.

A spokesperson for the IMF said discussions at the recent spring meeting “suggest ample demand for RST financing”.

The requirement of having or entering into an IMF programme to qualify for the support “is a critical design element” to allow policy reforms to bear fruit and ensure countries are able to repay the trust, they said.

The story was updated on 28/04/22 to include the IMF’s response to CHN’s questions. 

The post IMF’s resilience fund ‘out of reach’ for some nations in need appeared first on Climate Home News.

Its proposed Resilience and Sustainability Trust would redistribute affordable finance from rich to poorer countries along with policy support to manage macro-economic climate risks.

Speaking during the IMF’s annual meeting last week, its head Kristalina Georgieva told reporters the trust has “a very important objective: to help countries transition to low‑carbon climate resilient, smart inclusive economies”.

Finance ministers from the G20 major economies endorsed the idea and asked the IMF and the World Bank to work together to deliver it.

Experts hailed the move as “pivotal” in helping vulnerable nations address the triple crisis of debt, Covid and climate change. Advocates said it could fill a gap in the climate finance architecture – although one critic said the money would be better routed through established climate funds.

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Since the start of the coronavirus pandemic, cash-strapped developing countries and small island states have been pleading for financial support to make up for the collapse of revenues from tourism and the commodity trade. Low credit ratings mean they can’t easily borrow to finance a green recovery and in many cases are struggling to meet citizens’ basic needs.

Sara Jane Ahmed is a finance advisor to ministers from the V20 group of vulnerable countries, which has lobbied the IMF for the creation of such a fund.

Ahmed said the IMF has traditionally been focused on financial shocks, meaning “the physical shocks caused by climate-fueled disasters have inadequate support”.

Yet climate change spells “economic and financial disruption and destruction for the world’s most climate vulnerable developing countries,” she said. The new trust could support vulnerable nations to develop economic strategies with climate resilience at their heart, she added.

Kevin Gallagher, professor of Global Development Policy at Boston University and a champion for green debt relief, told Climate Home News this was “a pivotal moment”.

The Resilience and Sustainability Trust creates “a largely climate finance fund” of up to $50 billion, he said. “That doesn’t happen every day.”

It could help “fill a gap in the climate finance architecture” by helping emerging markets and developing countries respond to climate disasters, he added.

For example, if a hurricane hits a Caribbean island and wipes out its hotels and roads driving away tourists and collapsing its revenues, the nation won’t be able to pay for imports or pay back existing international debt. The trust would allow countries to go to the IMF for specific climate-related support.

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The idea for the trust was born amid a decision by the IMF to inject the equivalent of $650 billion of reserve assets, known as special drawing rights (SDRs), into the global economy to help countries respond to the Covid-19 crisis.

By default, SDRs are allocated to countries proportionally to the size of their economy, which means richer nations receive most of the support. Low-income countries only get about $21bn.

Georgieva has repeatedly urged rich nations to voluntarily redistribute the money to those who need it most and IMF staff have been working on options to do so.

Unlike other IMF funds, the proposed Resilience and Sustainability Trust would provide support for vulnerable middle-income countries as well as the poorest.

Paul Steele, chief economist at the London-based IIED think tank, said the trust was “a huge breakthrough for climate vulnerable countries”.

By scaling up its size to meet developing countries’ needs, “it could be transformational for climate resilience,” he told Climate Home News.

The IMF said it was “confident” that with the backing from the international community the Resilience and Sustainability Trust “could become operational in just over a year”.

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While experts have widely welcomed the creation of the trust, they are poring over the fine print.

A senior UN official told Climate Home News that, to be successful, any mechanism for redistributing the SDRs needed to help countries to “make good on their 2030 climate plans and build resilience”.

Steele, of IIED, said that the SDRs channeled through the trust must be additional to aid money. The UK committed on Wednesday to sharing £1 billion of its £20bn ($27.4bn) allocation with vulnerable countries. Controversially, though, chancellor Rishi Sunak is expected to count this towards a reduced aid target rather than using it to restore previous levels of support.

Steele said the money could lead to policy changes which have so far eluded the Paris Agreement’s main funding mechanism, the Green Climate Fund, which works at the project or programme level.

Hannah Ryder, CEO of Development Reimagined, an African-led international development consultancy, disagreed. In an article for The Africa Report, she argues that SDRs should be re-distributed directly to the Green Climate Fund and the Adaptation Fund – without the need to create another IMF-administered trust.

This, she said, would allow money to be targeted to specific regions and places where it is most needed.

“For Georgieva to be a true hero, she needs to focus on not creating a new fund but on reforming the fund she is in,” she wrote.

In the past, access to IMF funds have come with onerous fiscal conditions that many have argued did more harm than good and people and put countries off using its support.

Gallagher said it was “paramount” that the trust did not impose rigid conditions for accessing cash. “We cannot afford to lock up billions in climate finance.”

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At the opening press conference of the IMF’s spring meeting, Kristalina Georgieva said income level was the primary consideration when disbursing international finance.

“But there are other sources of vulnerabilities, for example high vulnerability to climate shocks. And therefore the international community should look into other factors of vulnerability as we think of appropriate ways to support developing countries,” she said.

Her comments came after G20 finance ministers agreed to extend a debt repayment holiday for poor countries beyond June to December 2021.

A total of 73 low income countries are eligible for the temporary suspension of debt service payments owed to official bilateral creditors. This excludes most debt-laden middle-income and emerging economies.

Ministers declined to expand the initiative to middle-income countries such as small island states in the Caribbean. There, nations are facing ballooning debt levels as the costs of Covid-19 and climate impacts mount and tourism revenues plummet.

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In a statement published following the meeting, the Alliance of Small Island States (Aosis) said the extension of the debt repayment pause “only goes some way to solving the huge debt issues Covid-19 and climate change have served up to island nations”.

Aosis has previously called on G20 members to widen the debt service suspension initiative and consider outright debt relief for highly vulnerable and indebted small island states.

“More than half of the world’s small island states don’t even qualify for this debt relief, due to outdated and illogical criteria,” said ambassador Aubrey Webson of Antigua and Barbuda and Aosis chair.

“We are squeezed on all sides, yet due to the arbitrary designation of ‘middle-income’ status, many of us are told that we do not need assistance. This is ludicrous in a year when our debt-to-GDP ratios are beyond maxed out and when even in the best of times, a hurricane can easily wipe out an entire year’s GDP in one fell swoop,” he said.

Belize, for example, was locked out of the scheme despite facing debt levels of 126% of its GDP.

“As small open economies, we see vulnerability as an inextricable combination of climate and economic vulnerabilities,” Christopher Coye, a minister of state in Belize’s finance ministry, previously told Climate Home News.

Aosis called for the debt repayment holiday to be extended beyond 2021 until a “fairer, more inclusive system” is agreed.

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An assessment by the World Bank and the IMF, seen by the New York Times, described the combination of debt, climate change and environmental degradation as representing “a systemic risk to the global economy” that “exacerbates climate and nature vulnerabilities”.

Georgieva said she was concerned about middle-income countries that have entered the crisis with high debt levels and whose limited fiscal space has meant they haven’t been able to invest in a resilience and a green recovery.

“Middle-income tourism-dependent countries are in a very difficult position. We are of course concerned how we rally more support so they can be [on a] more prudent path to recovery,” she said.

UN secretary general António Guterres told a press conference last week additional liquidity in the economy was urgently needed to support the most vulnerable countries. “We cannot walk head on, eyes wide open, into a debt crisis that is foreseeable and preventable,” he said.

G20 finance ministers have backed calls for the IMF to issue $650 billion of special drawing rights (SDRs) – an IMF reserve asset that has only been issued four times before to respond to crises.

The cash is traditionally allocated according to the size of countries’ economies. Vulnerable nations have urged richer countries to donate or redistribute some of their SDRs, to help them afford vaccines and a green recovery.

Rare IMF relief offers a hope of green recovery to debt-laden nations

Georgieva said the IMF was working on a proposal for issuing the crisis funds to present to its executive board, which is made up of member states, “some time in June”. In parallel, she said, the IMF was “identifying viable options for using SDRs from wealthier members to support our more vulnerable countries”.

The IMF has received a number of proposals for doing so. This includes calls for ensuring middle-income countries that have been locked out of the debt payment suspension scheme receive more support. Argentina and Mexico are among the nations calling for urgent relief.

Georgieva said the IMF will assess these ideas and ensure they are “defined on the basis of contributing most effectively to the needs of vulnerable countries”.

“We will discuss with the members whether there is enough support to expand the concessionality of re-allocated SDRs beyond low-income countries. How we define these options is work to be done intensively in the next months,” she said.

The post Climate vulnerability should be factored into debt relief, says IMF head appeared first on Climate Home News.

IMF chief Kristalina Georgieva has repeatedly called on countries to ensure spending is directed to green investments to weather the economic impact of the pandemic. Doing so, she said, could boost global GDP by 0.7% on average in the first 15 years of the recovery.

The IMF has made a quarter of its total lending or $280 billion available to countries, with more than a third of the funds accessed by nations since March to respond to the economic impact of Covid-19. So far, it has helped 81 countries, including 79 with emergency funding, with most of the payments made through short-term programmes with no conditions attached.

But in advice the IMF is offering alongside its financial support, it implicitly backs fossil fuel subsidies that risk putting countries on a polluting pathway.

Analysis by the Netherlands-based group Recourse, which campaigns for green finance, found the IMF failed to systematically recognise the macroeconomic risks the energy transition posed to countries: that is, fossil fuel infrastructure could lose value because of carbon-cutting policies and competition from clean technology.

At a meeting of 52 finance ministers on Monday, Georgieva said climate change was a “macro critical” issue — a term use by the fund to describe issues that are critical to ensure countries’ macroeconomic stability, which is at the core of the IMF’s mandate.

“Even while we are in the midst of the Covid crisis, we should mobilise to prevent the climate crisis,” she said. “Climate change is a profound threat to growth and prosperity… And macroeconomic policies are central to the fight against climate change.”

She urged governments to tax carbon to support those most affected by the shift away from fossil fuels and called on major emitters to adopt a carbon price floor to build global consensus on climate action.

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However, in review of the IMF’s most recent economic policy advice to India, Indonesia, the Philippines, Mozambique and South Africa – five countries with ongoing coal expansion – Recourse found the fund was endorsing financial assistance that could be used for fossil fuels.

It found the IMF encouraged governments to increase public spending for priority infrastructure projects, which in India, Indonesia and Mozambique include coal power plants and export infrastructure.

And it backed tax incentives for new infrastructure investments without differentiating between low and high-carbon projects, the analysis showed.

In India, for example, the IMF suggested the government increased the rate of its existing carbon tax as a way to generate revenues but made no mention of the tax breaks India recently introduced for coal production.

Meanwhile in Mozambique, a World Bank and IMF debt sustainability assessment for accessing Covid-19 emergency funds found the country’s debt was “sustainable” based on anticipated revenues from a controversial mega project to produce and export LNG.

“If the IMF is serious about the green recovery and a clean and climate-resilient transition they need to start walking the talk themselves,” said Nezir Sinani, co-director of Recourse. “An easy start would be by ending tax breaks for fossil fuel producers, including for coal,” he said.

IEA outlines how world can reach net zero emissions by 2050

In a Q&A session with NGOs, James Roaf, coordinator of climate change policies in the IMF’s fiscal affairs department, said the fund was “not in any way supportive of producer subsidies for fossil fuels” which he described as “bad policy”.

He added the IMF was “not going to be able to tell countries what to do on climate” but worked through dialogue with governments, capacity building and peer pressure.

In a separate IMF briefing with civil society representatives last week, Jon Sward, environment project manager at the UK-based NGO Bretton Woods Project, put Recourse’s findings to Georgieva.

“It is of particular concern to civil society that the IMF has constantly been overestimating future growth from oil and gas discoveries in Africa,” he said, citing a recent World Bank working paper that compared revenues from petroleum projects in 12 countries with initial IMF projections.

Georgieva admitted the IMF had overestimated the benefits of past investments in fossil fuels. She said the fund wanted to be at the forefront of linking risks caused by the energy transition and by climate shocks, such as extreme weather events, with financial stability.

“We are asking ourselves… what we can do in this crisis to make sure we come out on the other side as a greener, fairer and more sustainable, more inclusive, more resilient world,” said Georgieva. The IMF had established a “very strong research” stream on the issue and was working to integrate climate risks into its stress tests.

A Biden victory could spur global climate action, but the US has much to prove

“And I can tell you that it has not been an easy discussion,” she said, hinting at divisions within the IMF about the role the fund should play in addressing climate change.

“There are still some pushing that this is not for the fund, that the fund needs to focus on financial stability and that’s it. And so I spent a lot of time explaining that you cannot have financial stability without environmental and social sustainability.”

Dileimy Orozco, a senior policy advisor on sustainable finance at think-tank E3G, told Climate Home News the IMF needed to review the way it assesses countries’ economic and financial policies and the sustainability of countries’ debt to integrate climate risks. “These are the most important instruments the IMF has” to shift investments, she said.

She added the IMF should “give countries the confidence” to pursue longer term low-carbon investments opportunities without the threat of being penalised for not being able to repay growing debt immediately.

Sward, of the Bretton Woods Project, agreed the IMF’s work on climate change could “not be easily distangled” from its efforts to provide emergency relief.

“Many countries receiving IMF Covid-19 emergency assistance are being asked to carry out austerity as soon as next year. You cannot ask countries to implement their [climate plans] and transition to a low-carbon future if they have no fiscal space to do so.”

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EU Commission president Ursula von der Leyen has presented a carbon border tax as an important tool “to ensure that EU companies can compete on a level playing field” with big emitters such as China and the USA. This week von der Leyen announced that the EU would raise its emissions reduction target to at least 55% compared to 1990 levels – up from 40% currently – by 2030. 

The main reason for introducing a carbon border tax is to prevent carbon-intensive production from relocating to countries with lower emissions standards, a problem known as “carbon leakage.”

IMF president Kristalina Georgieva on Wednesday called on major emitters to cooperate and draw up a carbon pricing agreement. “The EU cannot stop global warming on its own. But it can bring the world together. A top priority should be an agreement on a carbon pricing floor among major emitting countries,” Georgieva said in a statement. 

Georgieva said that in the absence of such an agreement, applying the same carbon price on the same products, irrespective of where they are produced, could help avoid carbon leakage and ensure fairness towards European businesses.

An EU climate mitigation policy published by the fund elaborated on the position: “A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU.”

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Susanne Droege, senior fellow at the German Institute for International and Security Affairs, told Climate Home it was significant the IMF had publicly endorsed the EU’s plan to introduce a mechanism to avoid carbon leakage at the bloc’s border. “Carbon border tax is a potential option on how to implement that mechanism,” she said.

Harro van Asselt, professor of climate law and policy at the University of Eastern Finland, said several options remain open for how that carbon price could be applied.

“What seems most likely is that it will be in the form of a charge similar to the EU emissions trading system (ETS) allowance price for a limited set of sectors, for example cement and electricity, with importers being required to draw from a separate pool of allowances,” he said. 

Comment: How von der Leyen could make a carbon border tax work

Russia’s economic development minister said in July that an EU carbon border tax would contravene World Trade Organisation (WTO) rules. China and the US have also clearly stated their opposition and asked the WTO to make the EU clarify its plans, according to Droege.

It is critical that the bloc’s efforts to design the policy go hand-in-hand with diplomatic efforts to reassure major trade partners. “Otherwise there is the real risk of retaliation,” said van Asselt. The EU learned the hard way when it tried to impose the ETS on international aviation in 2012 and was forced to limit the scope to intra-EU flights only following strong international and industry backlash. 

Joe Biden has said that if he is elected US president in November, he may introduce a US carbon border tax “on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations.”

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Speaking on the sidelines of the IMF/World Bank Spring meeting, Mark Carney and Jim Kim painted a bleak picture of the level of global climate risk awareness.

Only a third of the world’s top 1000 companies had disclosed their exposure to extreme weather or carbon intensive assets that will likely be closed under tougher climate laws, said Carney.

“The biggest risk is there is an abrupt adjustment that comes late because the government are late to take action,” he said.

“It could come late because there’s not the information out there creditors and banks need to make the adjustment.”

Report: Bloomberg climate taskforce to target financial filings

Kim, who runs the world’s top lender to developing countries, said governments were still wedded to high-carbon projects that would lock in greenhouse gas emissions till 2050 and beyond.

“The thing I worry about the most is the window is closing and we have to make some decisions very quickly,” he said.

“Once countries put 40 gigawatts of coal in that’s a 50-year investment. We are not yet having an urgent conversation.”

One solution is greater transparency, said Carney, who established a Financial Stability Board and G20 initiative to encourage businesses to be open with the public over their low carbon strategies.

“We need the right information published by all companies,” he said. Carney is to discuss EU-wide proposals to stress test financial businesses at a meeting in Amsterdam on 22-23 April, Reuters reported on Friday.

Mark Carney: G20 to make green finance a ‘priority’

A slew of studies in the past 12 months have urged investors to take greater care over their stocks and ensure funds are not dominated by oil, gas and coal holdings.

“Our portfolio optimisation model currently recommends a reallocation of 30% of the holdings of a typical portfolio in oil and coal producers,” reads an April briefing from Impax Asset management.

That builds on a much-cited June 2015 report from consultancy Mercer, which warned average returns from the coal sector could fall 18-74% by 2050.

Kim urged stronger partnerships between governments, development banks and the private sector as a means to raising the trillions needed to build greener infrastructure.

A 2009 promise from wealthy nations to deliver $100 billion of climate funds a year by 2020 is “just not going to happen given the current situation”, he said.

Report: OECD estimates climate finance flows at $60 billion

Instead, countries should focus on using what grant-based aid there is to leverage multilateral development banks and set up some private deals.

“Every new deal will stimulate the market more,” he said. Tapping into the $100 trillion of fixed income assets in the hands of institutional investors like pension funds was critical, added Carney.

Earlier on Thursday finance ministers from countries vulnerable to the impacts of climate change said global finance flows had to be redirected to ensure a goal of limiting warming to 1.5C is met.

“We see the financial system as a weapon to fight climate change with tremendous potential,” said Cesar Purisima, Secretary of Finance of the Philippines and chair of the V20 group.

“So we are working hard to be pioneers in concrete and innovative economic and fiscal responses to climate change.”

Report: UN energy envoy urges investors to consider 1.5C warming limit

In a statement, the 40-strong group, which draws members from Africa, Asia, the Caribbean, Latin America and the Pacific, said it was pushing ahead with its own climate finance plans.

One option discussed was a financial transaction tax to raise funds, while countries also agreed to deliver carbon pricing regimes by 2025 and embed climate costs in public accounts.

The group said it would explore a “risk pooling mechanism” to help members affected by extreme weather events, which are projected to increase as the planet warms.

“The world needs ambitious action by all countries if we are to decarbonise globally and keep the window open for the 1.5C limit needed by vulnerable countries like mine to survive,” said John Silk, Marshall Islands foreign minister.

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IMF managing director Christine Lagarde (Pic: IMF/Flickr)

By Alex Pashley

Slumped oil, gas and coal prices could hold back a global shift towards lower-carbon energy sources, according to the International Monetary Fund.

“The current low fossil fuel price environment will certainly delay the energy transition,” the Washington DC-based lender said in its World Economic Outlook on Tuesday.

Cheap prices reduce countries’ desire to embrace renewable fuels that are typically costlier, the fund said. It added it may provide “scant economic incentive” for research ventures to develop breakthrough technologies.

Oil prices have dropped more than 70% since July 2014 to about $40 a barrel. Coal is trading at decade lows. Yet investment in clean energy last year surged 4% to $329 billion and installations of new power generation hit record levels.

Report: IMF to factor climate risk into world economic forecasts
Analysis: Wind, solar to thrive despite low oil prices, say experts

In its downbeat half-year update that warned of a stagnating global economy, the IMF said a low-carbon transition was at a “critical juncture”.

Governments should exploit current conditions to remove fossil fuel subsidies and implement a carbon tax, necessary tools to counter climate change.

But one UK energy analyst said the forecasts should be taken “with a very large pinch of salt.”

“The report is also very narrowly focussed on economic drivers, with scant attention paid to social or political factors,” said Richard Black, head of the Energy and Climate Intelligence Unit.

“For example it fails to recognise the regional politics behind Germany’s continuing coal use, or rising public anger about air pollution in India.

“It’s worth remembering that none of the large, supposedly authoritative global organisations such as the IMF or the IEA forecast either the oil price collapse or the plummeting cost of solar power, and I suppose the overall takeaway is that economic models on their own can’t forecast societal progress,” Black added.

Renewables were seen rising from 14% to 19% as a share of global energy needs from 2013 to 2040, the IMF said citing IEA data. But coal and oil will continue to dominate, despite falling from 36% to 26%, and 19% to 12%, respectively.

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International transport emissions are not mentioned in a Paris climate deal (Flickr/ Phil Norton)

By Megan Darby

The International Monetary Fund is calling for a carbon tax on aviation and shipping to help deliver global climate goals.

A charge of US$30 a tonne on carbon dioxide embedded in international transport fuels could have raised US$25 billion in 2014, the influential Washington DC-based body estimates.

In a report released after 195 countries struck a UN climate pact in Paris, it said carbon pricing should be “front and centre” in efforts to curb global warming.

Levies on so-called bunker fuels were “promising”, it said, and a possible source of climate finance – support for developing countries to go green and adapt to shifting weather patterns.

Shipping and aviation: Missing pieces in the climate puzzle

Emissions from planes and ships, around 4% of the global total and rising, were not directly addressed in the Paris agreement.

It is up to the UN-backed authorities, the International Civil Aviation Organization and International Maritime Organization respectively, to regulate the international sectors.

The IMF noted there were “challenges” to imposing a levy, including the need for international coordination and legal issues, “but the practicalities should be manageable”.

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IMF chief Christine Lagarde often speaks about climate change (Pic: World Economic Forum swiss-image.ch/Michael Wuertenberg)

By Megan Darby

The International Monetary Fund is to start factoring in climate change to its macroeconomic models from next year, Climate Home has learned.

That means its much-cited World Economic Outlook could expose how moves to curb greenhouse gas emissions threaten growth in oil-exporting countries, for example.

The Washington DC-based IMF is the world’s leading authority on financial stability, boasting significant influence in the 188 countries it counts as members.

In May, it released a controversial study suggesting fossil fuel subsidies were worth US$5.3 trillion a year. In August, it urged Saudi Arabia to diversify its economy away from oil.

Christine Lagarde, head of the organisation, has repeatedly called for carbon pricing to encourage green investment.

“I am committed to a stronger emphasis on financial inclusion, inequality, gender, and climate change – where we will focus on the macro-critical aspects of these issues,” she said at its annual meeting in Lima earlier this month.

Yet there was no mention of climate change when IMF world growth forecasts were launched at the same meeting.

Report: IMF chief seeks climate breakthrough at Lima meet

At a conference in London this week, delegates heard the IMF plans to integrate climate risk considerations more fully, including into macroeconomic assessments.

High-level guests were speaking under the Chatham House rule, which means the source cannot be identified. The IMF was not able to confirm the account at time of writing.

On the fringes of another event in London, on the financial implications of climate action, experts told Climate Home such a move would be welcome.

Speaking at @carbonbubble event in London about the financial implications of #COP21 https://t.co/fvPdNqzd2X pic.twitter.com/9SRa7LGvkd

— Christiana Figueres (@CFigueres) October 27, 2015

“It makes perfect sense,” said Ben Caldecott, environmental economist at Oxford University. “The IMF doesn’t always get it right” with economic forecasts, he noted, but it could inspire other agencies to consider climate. “It sort of kicks off a methodological conversation.”

Anthony Hobley, chief executive of influential think tank Carbon Tracker, described it as “huge” news. “It is something that has been completely overlooked.”

Carbon Tracker has been instrumental in raising awareness among the finance community of risks associated with fossil fuel stocks.

More than two thirds of coal, oil and gas is unburnable if global warming is to be held to 2C, the international goal. Conventional energy majors’ business plans are incompatible with efforts to stabilise the climate.

Report: EU negotiating plan for Paris to back long term goal

A UN deal due to be finalised in Paris this December could make that conflict even more explicit. Negotiators are working to include a long-term global emissions-cutting goal.

The precise language has yet to be agreed, said UN climate chief Christiana Figueres. “The point is, over the next fifty years, we have to completely transform the global economy to very, very deeply decarbonise our structures.”

An estimated US$90 trillion will flow into infrastructure over the next 15 years, mostly in the developing world, which she said must be invested sustainably.

At present, just over a fifth of FTSE 100 companies are in energy or mining, taking a significant chunk of available capital. The likes of Shell, BP and ExxonMobil expect to keep it that way, projecting increased levels of fuel burning that would bust through the 2C threshold.

Report: Fossil fuel majors accused of ignoring potential demand crash

In a report last week, Carbon Tracker challenged their assumptions, saying they ignored “huge potential” for energy saving and clean sources to slash demand.

Environmentally aware shareholders are increasingly putting pressure on carbon-intensive companies to test the implications of a 2C world for their business models. In the short term, it could mean ditching expensive projects like Canada’s tar sand exploration, while preparing for an eventual phase-out of fossil fuels.

In another sign climate concerns are going mainstream, the world’s biggest asset manager is reportedly considering a fossil-free offering for launch in early 2016.

Sarah Butler Sloss, Chair of the Ashden Trust, revealed on Tuesday that Blackrock, which manages over US$4.5 trillion worth of assets, is preparing to set up a climate-friendly fund.

Report: United Arab Emirates submits renewables goal to UN

Yet most of the world’s oil is in the control of national governments. For petrostates, climate risk is material to financial policy.

They are already suffering from unexpectedly low oil prices in the past year. Wealthy Saudi Arabia is set to run out of cash within five years if the situation persists, while Venezuela’s tanking economy has led to food riots.

Meanwhile, oil exporters have proved reluctant passengers at climate talks, with most missing the UN deadline for contributions to a Paris deal.

“There are many countries that have fossil fuels as their main source of foreign currency income,” said clean finance veteran James Cameron.

“We are going to go through a phase of revaluing those assets. Those countries have to be prepared for that. They either have to hedge against that by investing in low carbon abroad or starting to transition at home – or both.”

Report: Carney urges G20 to tackle financial risks of climate change

The Bank of England lent its weight to concerns about “transition risk” with the release of a landmark report last month.

If investors and policymakers fail to anticipate the low carbon shift, there could be dramatic shocks to the financial system down the line, it warned.

Direct damage from increasingly extreme weather and lawsuits against negligent firms were other threats outlined in the report.

It recommended the G20 set up a climate disclosure taskforce to make corporations reveal their exposure to such risks.

That is likely to be launched when G20 heads of state meet in Antalya, Turkey, next month, another Chatham House speaker said.

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For Germany, carbon pricing is a way to promote investment in renewables (Windwärts Energie GmbH / Photographer: Mark Mühlhaus/attenzione)

By Megan Darby

Six heads of state are calling for carbon pricing, in the highest level intervention to date.

Germany, Chile, France, Ethiopia, Philippines and Mexico leaders on Monday voiced support for moves to make climate polluters pay.

That will help governments and businesses deliver on the climate plans they have submitted towards a UN pact, they argued.

“Low carbon technologies are an element in the fight against worldwide climate change,” said German chancellor Angela Merkel.

“With a price for carbon and a global carbon market, we promote investment in these climate friendly technologies.”

Coordinated by the World Bank and IMF, the statement came out as negotiators entered a fiery week of talks, ahead of December’s critical Paris summit.

Report: Developing countries demand additions to slimmed-down climate text

Diplomats in Bonn were due to start line-by-line discussion of a draft text that had been radically slimmed down by two co-chairs.

But developing countries said the editor’s knife had gone too far and demanded to be allowed to reinsert some elements first.

Rachel Kyte, climate envoy at the World Bank, was unconcerned to see all mention of carbon pricing dropped, however.

She told Climate Home: “We don’t, as the World Bank Group, believe that we have to legislate carbon pricing in the negotiated text.”

Instead, the multilateral organisation is concerned with what happens “on the Monday morning after Paris,” when governments start to put their plans into practice.

Paris tracker: Who has pledged what for 2015 UN climate pact?

Out of more than 150 “intended nationally determined contributions” (INDCs) to a climate deal, around 80 refer to carbon pricing.

“We regard those plans as a first generation investment prospectus for a more competitive, cleaner future,” Kyte said. “We are pleased that so many of the INDCs do mention getting prices right.”

At the last count, 40 countries and 23 regional authorities covering 12% of global greenhouse gas emissions had a carbon tax or trading system.

The biggest of these, in the EU, has faced fierce opposition from energy intensive industries like steel and chemicals. These sectors argue the increased costs put them at an unfair disadvantage to competitors overseas.

Meanwhile green groups warn the market price is too low, at $8 a tonne, to spur significant climate action.

“As new schemes expand, importantly in China, designers must ensure the carbon price is both high and reliable enough to drive low-carbon investment at scale,” said Damien Morris of UK think tank Sandbag.

Analysis: Why are big EU polluters moaning about carbon leakage?

France president Francois Hollande acknowledged competitiveness concerns, but said: “We must therefore act with resolve.”

A price on carbon “is the most tangible signal that can be sent to all economic actors,” he added.

Chile is taxing its transport and power sectors and using the revenue to fund education reform, president Michelle Bachelet said. “We believe in the polluter pays principle.”

And Ethiopia, one of the first developing countries to put forward a climate plan, hopes to finance some initiatives through international carbon markets.

“Like many nations, Ethiopia has much to gain from early action on climate change – and much to lose if we collectively fail to act,” said prime minister Hailemariam Desalegn.

“A carbon price can be a win-win, not just for nations like Ethiopia, but for the entire planet, provided that it is coordinated and its incidence does not unduly fall on the poor.”

California governor Jerry Brown and Eduardo Paes, mayor of Rio de Janeiro, also endorsed the statement.

The post Germany, Ethiopia, Mexico leaders back carbon pricing appeared first on Climate Home News.

Cyclone Pam flattened parts of Vanuatu earlier in 2015 (Pic: Grace Wye/Flickr)

By Ed King

Three island countries could disappear and an estimated 40 million people be made homeless if the impacts of climate change are left unchecked.

That was the headline warning from a coalition of 20 developing countries, which on Thursday launched a fundraising initiative to protect their citizens from climate impacts.

“Climate shocks already exceed our regional/national capabilities at approximately half our target level of global warming of not more than 1.5C above pre-industrial temperatures,” they said in a statement.

The newly formed V20 group (the V stands for vulnerable) includes Bangladesh, Kiribati, Rwanda, Ethiopia, Vietnam and Afghanistan.

World Bank chief Jim Kim addresses the press ahead of the 2015 annual meeting in Lima, Peru (Pic: World Bank/Flickr)

In total it represents 700 million people and offers a platform for finance ministers from those countries to demand more climate-related cash from the international community.

“In the absence of an effective global response, annual economic losses due to climate change are projected to exceed US$400 billion by 2030 for the V20, with impacts far surpassing our local or regional capabilities,” said Cesar Purisima, Philippines finance minister.

Speaking in Lima on the sidelines of the annual World Bank/IMF meeting, Costa Rica’s finance vice minister Jose Francisco Pacheco described the initiative as “historic”.

“We have decided to work together to ensure we are not made victims, but do everything we can to contribute to a resolution to this crisis,” he said.

V20 statement: excerpt

A Working Group of the V20 commenced immediate follow-up to begin implementation of the first Action Plan, progress on which will be presented at the UN Climate Change Conference at Paris (COP21) later this year. The V20 statement said COP21 must deliver “an agreement entirely consistent with the non-negotiable survival of our kind,” while highlighting the significance of a strengthened below 1.5°C temperature goal.

Afghanistan, Bangladesh, Barbados, Bhutan, Costa Rica, Ethiopia, Ghana, Kenya, Kiribati, Madagascar, Maldives, Nepal, Philippines, Rwanda, Saint Lucia, Tanzania, Timor-Leste, Tuvalu, Vanuatu and Vietnam are part of the V20 and the associated Climate Vulnerable Forum (CVF) that mandated the group’s formation.

According to the V20, an estimated 50,000 people a year are already dying from climate-related impacts, while further warming could see Kiribati, Maldives, and Tuvalu submerged by rising oceans.

UN development head Helen Clark and World Bank president Jim Kim offered their support to the group, which said it wanted to collaborate with the UN and multilateral development banks to explore funding options.

A scoping document said finance ministers would boost their “limited contributions” towards climate-related projects and develop an insurance scheme to cope with future impacts.

It demanded a greater share of funds from developed countries and suggested more rich nations adopt a financial transactions tax (also known as a Robin Hood tax) to raise revenue.

An OECD report this week suggested climate finance flows from rich to poor countries were already over halfway towards a 2020 goal of US$100 billion a year.

Developing countries set out trillion-dollar investment asks in their submissions to the UN ahead of a global climate deal to be finalised in Paris this December.

“We want to the world to know that we will not overlook the perils that our economies have been placed at due to the shortcomings, particularly of action by major economies,” said Dr Atiur Rahman, governor of the bank of Bangladesh.

“The world also needs to know that working together our vulnerable countries are doing everything in our power to bring the climate crisis under control, and we won’t relent until we’ve succeeded in our ambition.”

The post Climate vulnerable states despair of rich, launch finance plan appeared first on Climate Home News.

Christine Lagarde leads the International Monetary Fund (Pic: World Economic Forum/Michael Wuertenberg)

By Ed King

“If we collectively chicken out of this, we’ll all turn into chickens and we’ll all be fried, grilled, toasted and roasted.”

So said Christine Lagarde, head of the International Monetary Fund, in a press conference in Lima on Wednesday.

Her focus: climate change. Her message: it’s the right time for all governments to start pricing greenhouse gas emissions.

Lagarde’s call came two days before one of the most important financial meets of the year, hosted by the IMF and World Bank.

The three-day gathering of top finance ministers, which starts on Friday, is a chance to assess and analyse how to better manage the global economy.

China’s slump, weaker than expected growth in emerging economies, the end of the commodity boom and tax avoidance top the agenda.

But with a UN climate pact primed to be finalised in Paris this December, leveraging finance for green growth has never been more important.

Show me the money

The climate priorities in Lima appear clear. Developed countries and multilateral development banks (MDBs) are being asked to double their finance contributions up to 2020.

The IMF and World Bank are pushing the roll-out of carbon pricing hard, surfing on the wave of optimism generated by China’s confirmation last month that it will open a national market in 2017.

A recent study revealed 12% of emissions are covered by trading schemes or taxes. 40 governments and 20 cities are taking part, although the vast majority have a price below $10 a tonne, too low to make much difference.

And subsidies for oil, gas and coal – which an IMF analysis says total $5.3 trillion a year when the health and environmental costs of burning fossil fuels are incorporated – are in the crosshairs of delegates.

“We have been trying to help countries remove fuel subsidies,” said World Bank chief Jim Kim at a briefing yesterday.

Kim argued the fall in oil prices offered a window of opportunity to ditch what are effectively incentives to pollute, but added he understood why governments viewed the issue as toxic.

“Politicians don’t like it when taxi drivers and truck drivers block the streets,” he said, naming groups that stand to lose out from subsidy cuts.

The pressure will be raised later on Thursday, when finance ministers from 20 of the world’s most climate vulnerable countries announce the formation of a new economic and finance coalition to protect their interests.

The “V20” includes Afghanistan, Nepal, Rwanda, Kiribati, the Philippines and Vietnam – a sign of growing frustration at the lack of help they have received to prepare for future droughts, floods and the impact of rising sea levels linked to climate change.

Report: OECD estimates climate finance flows at $60 billion

Still, glimmers of hope are shining on Lima and Paris.

A report on Thursday by the Paris-based Organisation of Economic Cooperation and Development said green aid to poor countries was rising, from around $50 billion in 2013 to $60bn in 2014.

Questions remain over how the figure was reached – critics say the definition of climate finance is too loose – but most analysts Climate Home spoke to said the news was positive.

The UK and France have boosted their contributions in recent weeks. Climate Home understands the French government is pushing other developed nations to follow suit before the Paris summit.

G20 finance chiefs in Lima are also discussing how their bloc can collectively contribute. One idea proposed by green groups this week is an agreement to make energy efficiency a global infrastructure priority.

“This could make a huge dent in global energy consumption whilst boosting economic growth,” said Ada Amon from the E3G think tank in London. “No other infrastructure investment can do so much for so many.”

Infrastructure challenge

An estimated $90 trillion will be needed in the next 15 years to invest in infrastructure, land use and energy, according to the New Climate Economy report, a giant tome produced by an eminent team of academics, politicians and business leaders in 2014.

This week economist and climate expert Lord Stern called on multilateral development banks (MDBs) to start pulling their weight and ramp up infrastructure lending in the next decade from $30-40 billion a year to $200bn.

“Done well, this could leverage much larger sums from the private sector and could make a crucial contribution to sustainable growth and the low-carbon transition,” he said.

“The banks should focus on mobilising private finance, simplifying application procedures to speed up project approval, and help with policies to phase out fossil fuel subsidies.”

Some are starting to cough up more: the European Investment Bank and European Bank for Reconstruction and Development released plans in their last week to radically upscale their support.

The World Bank is understood to be on the cusp of a similar announcement this week, while a wider MDB pledge to screen all investments for climate risk by 2018 is under discussion.

Wider debate

What’s different this year is that it’s not just a debate led by activists banging their drums outside the talks. Integrating climate risk into global finance talks has support from serious players – such as Mark Carney, governor of the Bank of England.

Last week he told a London audience of bankers and insurers the window of opportunity to manage financial threats posed by global warming was “finite and shrinking”.

“With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers, and a smoother transition to a lower-carbon economy,” he said.

Major corporations needed to start disclosing their exposure to high carbon assets on a wider scale, he added, citing analysis that many oil, gas and coal companies hold assets that will be unburnable if governments enforce tougher climate policies post Paris.

That’s also set to be at the heart of a report from the UN environment body – due out on Thursday – which will detail how changes in the finance system can prioritise sustainable and environmentally friendly growth.

Led by Nick Robins, former head of climate change at HSBC, it could send another signal to fund managers that fiduciary duty should include a care for the longterm wellbeing of their clients – beyond a 2-3 year time horizon – which means accounting for climate risk.

These types of deeper structural changes, fossil fuel subsidy reform and the roll out of carbon pricing could – long term – offer a better pathway to green growth than numerical targets like the $100 billion by 2020 promised by rich countries in 2009.

“The $100bn was picked out of the air at Copenhagen,” World Bank climate chief Rachel Kyte told the Guardian in an interview this week.

“If you think about the global economy and the challenge for finance ministers in developed countries, I’m not sure that an abstract number like $100bn is helpful. It is not a meaningful number to a country managing its economy.”

The post IMF chief seeks climate breakthrough at Lima meet appeared first on Climate Home News.

(Pic: Hamza82/Flickr)

By Ed King

High public spending and falling oil prices threaten Saudi Arabia’s economic health, the International Monetary Fund (IMF) warned on Monday.

Publishing the results of a recent consultation with the Kingdom, the Washington-based lender said it should continue moves to diversify its economy away from oil revenues.

The country’s export revenues from January to May 2015 fell to $52 billion from $60 billion over the same period in 2014, draining government cash reserves.

“Directors noted that the sharp drop in oil revenues and continued expenditure growth would result in a very large fiscal deficit this year and over the medium term, eroding the fiscal buffers built up over the past decade,” said the IMF.

Analysis: Saudi Arabia’s failed oil gamble… and the climate

Oil prices have fallen from around $110 a barrel of oil in June 2014 to under $50 in August 2015, due in part to a Saudi strategy of keep taps running to drive competitors out of business, such as the US shale industry.

The Saudi banking sector could weather lower prices, the IMF said, but predicted GDP would slow to 2.8% in 2015 and 2.4% in 2016.

“The decline in oil prices has increased the importance of structural reforms to switch the focus of growth away from the public sector and toward the private sector,” it said.

The government would continue to “focus on reforms that aim to increase the employment of nationals in the private sector and diversify the economy away from its reliance on oil,” the report added.

Solar investments

Saudi Arabia holds the world’s second-largest oil reserves, and has fiercely guarded its right to produce hydrocarbons at ongoing UN talks to tackle climate change.

Earlier this year Saudi envoy Khalid Abuleif told RTCC oil and gas would be “part of the future global climate solution”, dismissing moves to secure a mid-century zero emissions goal.

Still, oil minister Ali al-Naimi says the country is planning significant solar energy investments in the medium term to meet domestic power requirements.

The country’s main renewable energy research centre said the Kingdom could get a third of its power, equivalent to more than 40,000 megawatts (MW), from solar power by 2032.

The post IMF: Saudi Arabia should rely less on oil appeared first on Climate Home News.

Fossil fuel companies do not pay for all the environmental damage linked to their product (Pic: BP)

By Ed King

Fossil fuel subsidies in China, Qatar and Ukraine are some of the highest in the world according to new data from the International Monetary Fund (IMF).

China spends $2,271 billion a year backing the oil, gas and coal sector, the largest supporter in dollar terms on the planet, followed by the US with $700m and Russia on $335m.

Ukraine spends 61% of its GDP on subsidies – 49% on coal and 8% on gas, while tiny gas giant Qatar tops the per capita index, spending nearly $6,000 a head each year in support of fossil fuels.

Support among the world’s G20 is worth $1,000 per person a year, despite repeated pledges by the group of the world’s top economies since 2009 to phase out fossil fuel subsidies.

The data shows the UK spends $41 billion a year on subsidies, Japan $157bn, Korea £72bn and Germany $55bn. The hosts of this year’s UN climate conference – France – spend $30bn.

Speaking to the Guardian, climate change economist Lord Stern said the bloc should “honour their commitment” and admit spending on fossil fuels was “far greater than previously understood”.

Green groups, UN officials and the World Bank have long called for governments to get a grip on subsidies, which are blamed for boosting fossil fuel-linked carbon emissions by 20%.

Further calls for action may come in December, when 195 countries meet in Paris to finalise plans for a deal to slash emissions.

A new version of the negotiating text offers an option for countries to agree on a collective goal to reduce, eliminate or phase down subsidies, a proposal backed by the IMF.

“Energy subsidy reform can also contribute to carbon emissions reduction and help countries make pledges ahead of the Paris 2015 UN climate conference,” it said.

“To achieve significant carbon emissions cuts at the global level, it would be essential for top subsidizers in dollar terms to play a leading role.”

Report: Morocco bids to axe fossil fuel subsidies in climate pledge

An earlier version of the IMF study revealed global subsidies for fossil fuels were likely to hit $5.3 trillion in 2015, nearly 6.5% of the world’s GDP.

The new figures offer a country-by-country breakdown of the level of support offered to the sector, including tax breaks, financial assistance and price cuts.

In a controversial move, the IMF has included the costs fossil fuel use imposes on the environment and human health, radically boosting a figure that was $2 billion in 2013.

“The bulk of energy subsidies in most countries are due to undercharging for domestic environmental damage,” write officials in a blog accompanying the data release.

These externalities include local air pollution from coal fired power plants, traffic congestion and accidents linked to car use.

Many governments – including the UK – do not recognise these latest calculations, maintaining they do not offer high levels of support for the fossil fuel sector.

Still, according to the IMF, eliminating the subsidies could stop 1.6 million premature deaths a year and lead to a revenue gain of $2.9 trillion.

“In emerging economies, the revenue is worth double their corporate income tax revenues or public health spending.

“In low-income countries, it is about one and half times corporate income tax revenues or public health spending.”

The post China, Qatar and Ukraine top IMF fossil fuel subsidy leagues appeared first on Climate Home News.

Christine Lagarde: environmental damage is “mission critical” to the IMF

By Megan Darby

Governments should not wait for a global climate deal to hike taxes on fossil fuels.

That was the message, not from a green campaign group, but a groundbreaking study released by the International Monetary Fund (IMF) on Thursday.

The leading financial body said fossil fuels are “widely and substantially underpriced” and correcting those market failures would bring significant benefits.

Christine Lagarde, managing director of the IMF, at the study’s launch described climate change as “the greatest crisis facing our generation”.

The IMF normally concerns itself with fiscal affairs, but Lagarde said environmental damage was “mission critical”.

She explained: “It is bad for an economy to be downgraded – we know that. It is even worse for an economy to be degraded. When the environment is degraded, the economy is degraded as well.”

Fossil fuels have been “a double-edged economic sword”, Lagarde said: “While the world became richer as energy fueled economic expansion, only recently have we come to fully appreciate the damage done to our precious—and irreplaceable—natural resources.”

She quoted the American poet Wendell Berry: “To cherish what remains of the earth and to foster its renewal is our only legitimate hope of survival.”

Efficient tax

The study recommends efficient levels of taxation on coal, gas and motor fuels for more than 150 countries.

Together, these could cut carbon pollution by 23% and raise revenue equivalent to 2.6% of global GDP, it found.

The report’s authors counted the costs associated with air pollution, congestion and traffic accidents as well as climate impacts of burning fossil fuels.

Raising the price of pollution to reflect these impacts will benefit national economies even in the absence of a global agreement to tackle climate change, they concluded.

The report said: “The case for substantially higher energy taxes does not rest on climate change alone. Decisive action need not wait on global coordination.”

Lagarde stressed that she was not advocating higher tax overall, but “smarter tax”.

If countries act on the IMF advice, it could help build momentum towards a global treaty in Paris next year.

It follows IMF research showing fossil fuels are subsidised to the tune of US$1.9 trillion a year. These subsidies are unsustainable and should be scrapped, the IMF argued.

The post IMF: Hike fossil fuel taxes and reap benefits now appeared first on Climate Home News.

By Ed King

The planet is “perilously close” to a climate change tipping point, and requires urgent cooperation between countries, cities and business, International Monetary Fund chief Christine Lagarde has said.

Addressing an audience in London, Lagarde said reducing subsidies for fossil fuels and pricing carbon pollution should be priorities for governments around the world.

“Overcoming climate change is obviously a gigantic project with a multitude of moving parts. I would just like to mention one component of it—making sure that people pay for the damage they cause,” she said.

“We are subsidizing the very behaviour that is destroying our planet, and on an enormous scale. Both direct subsidies and the loss of tax revenue from fossil fuels ate up almost $2 trillion in 2011—this is about the same as the total GDP of countries like Italy or Russia.”

Describing the predicted consequences of climate change as “merciless”, Lagarde said leaders had to engage in what she called a “new multilateralism”, rekindling the “Bretton Woods spirit” which saw the creation of the IMF in 1945.

Lagarde’s comments come at a critical point in international efforts to address rising levels of greenhouse gas emissions. The UN expects a global deal will be signed in Paris next year. Preliminary negotiations are set to restart in Bonn at the start of March, with a draft text expected in November.

Report: Rising seas could swamp 5% of world’s population

In recent weeks UN Secretary General Ban Ki-moon, US Secretary of State John Kerry and World Bank President Jim Yong Kim have all called on countries and business to take the threats posed by global warming more seriously. Jim made what many believe was an historic call for investors to consider ditching holdings in fossil fuel companies.

Lagarde, whose organisation is one of the key supporters of the UN-backed Green Climate Fund, added that investment in poorer regions was essential to ensure they can cope with a range of extreme weather patterns that could emerge as a result of climate change.

“Make no mistake, it is the world’s most vulnerable people who will suffer most from the convulsions of climate,” she said.

“For example, some estimates suggest that 40% of the land now used to grow maize in sub-Saharan Africa will no longer be able to support that crop by the 2030s. This will have hugely disruptive implications for African livelihoods and lives.

“A few years back, Prince Charles gave this very Dimbleby lecture. He used the occasion to make an impassioned plea to respect the natural law of ecological sustainability. “In failing the earth,” he said, “we are failing humanity”.

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British Chancellor George Osborne (L) isn’t keen on the climate ambition IMF chief Christine Lagarde (R) wants to see (Pic: Chatham House)

By Kieran Cooke

The multi-billion-dollar global fossil fuel industry might be getting just a little bit worried.

In recent days, some of the biggest guns in the world of finance have all had the industry in their sights, calling for a cut back on fossil fuel subsidies and the fast-tracking of carbon trading schemes, or for the wider application of taxes on carbon.

Jim Yong Kim, head of the World Bank, and Christine Lagarde, managing director of the International Monetary Fund (IMF), held a joint news conference in which they stressed that climate change must be the main priority of both institutions.

“It is important that our two institutions always have climate change, environmental issues and price setting at the forefront of our agenda,” Lagarde said. “We have got to think about it every day.”

Establishing a proper price for carbon and removing energy subsidies were the IMF’s priorities, Lagarde said.  “If you do it the right way, you can put subsidies where they are needed.”

Jim Yong Kim said the priorities for the World Bank were to invest in sustainable energy for all, well-designed cities, and what he called smart agriculture. He said cutting fossil fuel subsidies was often “politically difficult”, but there were encouraging signs around the world from the implementation of carbon taxes.

Angel Gurria, the head of the Organisation for Economic Co-operation and Development (OECD), joined in the chorus, saying governments must take immediate action aimed at pricing carbon and abolishing fossil fuel subsidies.

“According to the latest International Energy Agency [IEA] estimates, subsidies to fossil fuel consumers in developing and emerging economies totalled US$ 523bn in 2011,” Gurria said.

OECD chief: carbon price vital to address climate change

“In many countries, these subsidies are used as a substitute for poverty relief. That is understandable, since energy is one of the fundamental basic human necessities.

“But such subsidies are generally poorly targeted, and instead end up being captured overwhelmingly by better-off households who can afford larger cars and houses that consume more energy. These subsidies are bad for the economy, bad for the environment, and also bad in terms of social justice.”

Meanwhile, a report by a group of academics at Oxford University has warned the fossil fuel industry that it could not afford to ignore a growing high-profile campaign urging investors to withdraw their cash from companies involved with fossil fuels.

Others point out that if meaningful action is to be taken on climate change, the bulk of fossil fuel company assets have to stay in the ground. This means that industry conglomerates are grossly overvalued and a carbon bubble is likely to burst in the near future.

The World Bank and a number of other financial institutions announced earlier this year that they were scaling back or stopping altogether funding for new coal-fired power projects. The US administration also said it would stop investing in coal projects overseas.

But it’s unlikely that the fossil fuel industry will be heading for the bunkers any time soon.

The World Bank still provides multi-million-dollar funding for fossil fuel projects. The US might have stopped funding coal projects overseas, but its coal exports are booming like never before.

And in Britain there were calls this week for the abolition of subsidies – not for fossil fuels but for the renewable energy industry.

This article was produced by the Climate News Network

The post Analysis: world’s finance chiefs are taking aim at fossil fuels appeared first on Climate Home News.

Source: Flickr / Striking Photography by Bo Insogna

UK: Governments forced to rescue the world’s banking system are being warned there will be no bailout if there is a crisis in the Earth’s climate system. That is the view of the head of the Organisation for Economic Co-operation and Development. Angel Gurria is expected to rebuke nations failing to curb CO2 emissions in a speech on Wednesday. (BBC)

China: Senior officials from South Korea and China held inaugural talks on Wednesday during which they discussed ways to promote bilateral cooperation on climate change and address environmental problems, a Seoul official here said. (Yonhap News)

Finance: Getting a global deal on climate change is critical, according to World Bank President Jim Yong Kim, but financial institutions must remember that immediate action is also possible. Speaking today alongside Christine Lagarde, the Managing Director of the International Monetary Fund, both agreed that climate change had to be a central priority going into the future. (RTCC)

Finance: Landis, the portfolio manager of the tiny $6.7 million Firsthand Alternative Energy fund , has posted a return of 79.6 percent for the year through October 7, the best performance of any actively-managed stock fund in the United States that doesn’t use leverage, according to Lipper. (Planet Ark)

US:  The federal government shutdown is reaching all the way down to the South Pole. The National Science Foundation announced Tuesday that it is putting its three Antarctic scientific stations in deep freeze just as scientists are starting to arrive for the start of a new research season. (Guardian)

Energy: A shale gas boom in the UK would create more than 100,000 jobs but the industry will take ten years to get going, according to new research. (Times)

EU: Guidelines for when EU member states can use taxplayers’ money to support energy generation will not include nuclear power, the European Commission, the EU executive, said on Tuesday. (Reuters)

The post No bailout for the Earth’s climate, warns OECD chief appeared first on Climate Home News.

The UN climate negotiations agreed to find $100bnof climate finance a year from 2020 onwards with a meeting in Washington DC this week exploring ways to source this from the private sector.

The ODI’s At Cross Purposes report warns that far greater action will be required from politicians to address what it calls skewed policies that support high emitting fossil fuels in large numbers while struggling to help nations to adapt to the impacts of climate change.

“There is a real risk that the international community is throwing green money after brown by pursuing project based approaches to a problem that requires a far more catalytic effort,” said the report’s author Shelagh Whitley.

“There is an enormous challenge to be met and the current approach risks being as effective as sticking a plaster on a broken leg,” she added.

Calls to end fossil fuel subsidies were highly visible at the Rio+20 Sustainable Development conference (Source: Flickr/Avaazorg)

“$5bn is not a small amount of money and it can make a real difference but we need to assess how it is spent. At the moment there are too many people supporting a piece-by-piece project based approach to a problem that is far greater than the sum of its parts.”

The report also found that five countries, China, Egypt, India, Indonesia and Mexico, appear in the list of top 12 recipients of climate finance and the top 12 list of providers of fossil fuel subsidies to consumers.

“Fossil fuel subsidies are just the beginning of a long list of subsidies that Governments provide which can be seen to skew the field against green investment,” said Whitley.

“We need to ask ourselves what it is that can persuade policymakers in London, Beijing and Delhi of the need for long-term solutions that overcome the short-term political temptations of subsidies.”

Support for fossil fuels can also come in the form of tax breaks to producers rather than direct reductions in cost for consumers.

The International Monetary Fund (IMF) called for the scrapping of $1.9trn of fossil fuel subsidies last week.

The IMF has made addressing subsidies a condition of some of its loans. Cuts in Jordan triggered by an IMF loan arrangement led to protests.

Many nations in the Middle East are using subsidies to soften public feeling, according to the International Energy Agency’s (IEA) deputy executive director Richard H Jones. He says many are looking for alternative ways to lower cost such as promoting energy efficiency.

The G20 pledged to address the issue but has so far only discussed a voluntary review among members.

The subject was prominent at the Rio+20 Sustainable Development summit last summer but similarly loose language left plenty of room for manoeuvre.

The post Fossil fuel subsidies dwarf green investment – report appeared first on Climate Home News.

A study commissioned by the organisation reveals that 8% of all government revenue globally is spent subsidising unsustainable energy with 40% of the $1.9 trillion total from advanced economies.

The group’s Energy Subsidy Reform study found that an overhaul could have beneficial results for a nation’s economy.

“Subsidy reform can lead to a more efficient allocation of resources, which will help spur higher economic growth over the longer term,” says the IMF’s David Lipton.

The IMF estimates that $1.9trn of public money is used to subsidise fossil fuels globally (Source: Flickr/whl.travel)

Petrol is heavily subsidised by many major oil and gas exporters – a policy viewed by the public as a way to share the benefits of the nation’s natural resources.

This partly explains the stiff resistance governments can face if they try to remove or reduce these subsidies – the 2012 unrest in Nigeria being one such example.

Countries from the Middle East and North Africa (MENA) were more likely to offer larger subsidies proportionate to the size of their own economy.

Many countries in MENA have increased subsidies in recent years.

Some could be looking to placate the public to avoid more unrest in the wake of the Arab Spring according to Richard H. Jones, deputy executive director of the International Energy Agency (IEA) in an interview with RTCC last year.

Jordan cut fossil subsidies last year as a condition of an IMF loan, sparking protests.

Political efforts

The report also warns that encouraging cuts in the price of fossil fuels for consumers, or the cost of is exploration by oil companies, could exacerbate climate change.

Stephan Singer, WWF Global Energy Policy Director says industrialised countries are responsible for the lion’s share of fossil fuel subsidies and should act now to stop them.

“If they were to abolish those subsidies and reform towards renewables and energy efficiency investments, it would more than triple present global investment into renewables,” he said. “And that is what is needed for a world powered by 100% sustainable renewables.”

The G20 group targeted inefficient fossil fuel subsidies “in the medium term” at its meeting in Pittsburgh in 2009. The G8 did the same at the 2012 Camp David talks.

This year’s G20 chair Russia hopes to put together a set of recommendations for a “voluntary peer review process for fossil-fuel subsidies” by the end of the year.

A large campaign to eradicate fossil fuel subsidies was formed for the Rio+20 Earth Summit last year however the final outcome of the conference provided only very loose language on the topic.

“Countries reaffirm the commitments they have made to phase out harmful and inefficient fossil fuel subsidies that encourage wasteful consumption and undermine sustainable development,” reads the Future We Want document.

“We invite others to consider rationalizing inefficient fossil fuel subsidies by removing market distortions, including restructuring taxation and phasing out harmful subsidies,” it continues.

Data from the Organisation for Economic Cooperation and Development (OECD) shows that developed countries have been gradually reducing support for producers from a peak of $20bn in 2006 to around $17bn in 2011.

“I do not know exactly what constitutes the medium term, but it is surely time to get on with fulfilling this very important commitment,” says the IMF’s Lipton.

Video: IMF’s David Lipton on fossil fuel subsidies

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