Where There's a Will There's a Way

30/11/2015 14:21 | Updated 30 November 2016

Imagine you needed to solve the greatest problem facing humanity; a problem that was universally acknowledged and whose solution was an urgent necessity. Most of us would do anything to save a person we love. Surely we would also spend any amount of money, mortgage our futures even, to save the planet, our life-support system, from catastrophic climate change? But with such commitment and devotion comes vulnerability. This is particularly so when it comes to the issue of climate finance.

We should remember that, from the cynic's point of view, where there's a will there's a relative. The wolves of global finance are circling, scenting our vulnerability, and looking to make a killing.

The Paris climate talks are focused around a number of Intended Nationally Determined Contributions (INDCs). These are pledges from around 150 countries to install the infrastructure needed to reduce their carbon emissions by a fixed amount. Analysis from Carbon Brief suggests that developing countries will need a total of around $3,536bn to implement their INDCs. This is the rock on which the Paris deal may flounder and to avoid this the parties in Paris are at risk of falling into the jaws of global finance.

While the argument so far has mainly focused on the quantity of money needed it is vital for the future of the world and particularly its poorer citizens that we consider how that money is created.

Private money is being rapidly created through the issue of bonds such as the Global Green Bond, launched by the World Bank to support lending for projects that seek to mitigate climate change or help affected people adapt to it. Since 2008 the World Bank has issued around $8.5bn in Green Bonds through 100 transactions in 18 currencies. The bank proudly lists the investments that have been facilitated thanks to these IOUs. These include a geothermal project in Indonesia, a solar facility in Mexico and a recycling facility in India. All good stuff, but since the return on the bonds is an impressive 5%, this will mean these poorer countries will need to pay money to wealthy Western investors for the life of the bond. This is the impact of privately financed climate solutions.

So what about public finance for such green transitional projects? The poorer countries are looking for Western pledges of finance and EU countries have made some commitments along these lines. The November meeting of the European finance council committed $100bn per year by 2020. The European Parliament has rightly called for some of the value of the EU Emission Trading Scheme to fund the Green Climate Fund, the UN mechanism intended to assist developing countries in averting climate change impacts. The Parliament is also belatedly promoting the introduction of taxes on aviation and shipping, both currently outside climate agreements.

But the political climate is far from ideal for governments to increase budgets either for transitional investment or for green-conditioned aid. The dominant rhetoric of austerity has put us in a straitjacket where we cannot find the public investment needed to save the world. Is there an alternative to either the straitjacket of austerity or the wolves of private finance?

The emancipatory alternative may come in the form of a global credit issue, what Colin Hines and Richard Murphy have referred to as 'QE for Paree'. Likewise, I also commissioned a report on 'green quantitative easing' which argued that the power of direct credit creation should be used strategically to fund the green transition; an idea also recently supported by Matthias Kroll.

Just as the world's major central banks have created credit through the process of quantitative easing, so the IMF could provide another source of climate finance by issuing Special Drawing Rights (SDRs). These can be used by developing countries as an interest-free alternative to building foreign exchange reserves through borrowing and debt. As the world's lender of last resort, what could be more appropriate for a world whose climate is certainly in the last chance saloon? SDRs for this purpose were originally discussed at a civil society event in April 2010 and the World Bank World Futures Council has made a similar proposal in connection with COP21.

There are of course risks to any strategy which results in a massive boost to the global money supply since it could lead to the kind of economic growth that causes climate change. To prevent this we would need the climate money to be channeled through a 'closed climate circuit', so that it can only be exchanged for goods and services that have measurable positive climate impacts.

The negotiations in Paris may well turn on the question of whether or not we can afford to save the planet. Our recent history suggests that if the planet were a bank we would have saved it by now. Green QE offers a way to transition to the green economy we so desperately need without it being hijacked by private finance.