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Entries tagged "Green Climate Fund"

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A Devil's Bargain on the Climate

February 24, 2014 ·

This blog originally appeared in Foreign Policy in Focus.

(Friends of the Earth International/Flickr)Two years ago, environmentalist Bill McKibben caused a stir when he revealed the “terrifying new math” of climate change. McKibben calculated that to have a reasonable chance of staying below what climate scientists call the “tipping point” of global warming — a temperature rise of more than 2 degrees Celsius over pre-industrial levels — humans can only send 565 more gigatons of carbon dioxide (CO2) pollution into the atmosphere.

Here’s the catch: The oil, coal, and gas reserves that fossil fuel companies and petro-states already have on their books account for about 2,795 gigatons of CO2. If they dig up — and we burn — those reserves, we’ll release five times more carbon than the atmosphere can handle. Hello, climate disaster.

That means that between 60 and 80 percent of known fossil fuel reserves are “unburnable” if the world is to have a chance of avoiding the tipping point. That’s why students, religious leaders, philanthropists, and everyday folks with retirement savings are doing the math and demanding that their investment dollars not prop up an industry that threatens life on earth as we know it.

These voices are joining community activists, Indigenous Peoples, and workers in the Global South — many of whom are on the front lines of climate chaos — who are calling on international institutions not to bank on fossil fuels to drive their economic development. It’s alarming, then, that a new UN Green Climate Fund that is being set up to help transition economies away from fossil fuels may itself support fossil fuel projects.

There’s no future — financially or ecologically — in development projects that warm the planet and destabilize the environment. If the UN wants to help developing countries make the leap to renewable energy, it should take a lesson from divestment activists all over the world and keep its checkbook closed to dirty energy projects.

A Bad Bet

For some, divestment will seem like leaving money on the table. Leaving those fuels in the ground, after all, makes for a lot of “stranded assets.”

The UK-based Carbon Tracker Initiative calculates that these unexploited reserves are worth about $4 trillion in share value and support $1.27 trillion in corporate debt. If you’re the financial officer of a university endowment or a pension fund manager, you might protest that your job is to raise money — and fossil investments still generally outperform renewable energy.

But in the long term, dirty energy investments won’t be so sure a bet. As more and more countries feel the impacts of climate change, serious efforts to curb carbon pollution could make those investments less appealing. Leaders of some of the most important international development and climate institutions recognize this and recently took the stage at the World Economic Forum to bring together the ecological and economic sides of the divestment case.

UN climate convention chief Christiana Figueres said investors would be “in blatant breach of their fiduciary duty” if they failed to pull their money out of fossil fuel-linked funds in the face of “clear scientific evidence” of global warming. And Dr. Jim Kim, president of the World Bank, called on long-term investors to “rethink what fiduciary responsibility means” in the face of climate change and to address the financial risk associated with their carbon-intensive investments.

Climate Fund for the 21st Century

Ironic, then, that the new UN Green Climate Fund could, perversely, become a major source of funding for fossil fuel infrastructure.

The mandate of the fund is to support a transformational shift in the global south away from fossil fuels and toward clean, climate-resilient development. But tucked away in the fine print of the fund’s governing document is support for technologies like carbon capture and storage (aka “clean coal”) — a technology that is not viable at scale and does nothing to address the cradle-to-grave environmental and social devastation that coal wreaks.

In fact, any mention of phasing out fossil fuels is conspicuously absent in the new climate fund, even as other international financial institutions are finally moving to wind down some of the coal-fired excesses of their energy portfolios.

There is, however, a window of opportunity to remedy this as the Green Climate Fund board members work toward final design elements at their meeting this week in Bali. One of those elements could be an exclusion list of dirty energy projects it simply won’t finance. Another is to agree on a framework of indicators of success (in board-speak, the “results management framework”) and strict performance standards that rule out dirty energy.

Most importantly, the board must adopt strong environmental and social safeguards for the projects it supports. In addition to avoiding fossil fuel projects, that might also mean refusing to promote projects like large hydroelectric dams that can cause large-scale displacement of people and loss of land and livelihoods.

An Uphill Battle

The task of keeping dirty energy out of the Green Climate Fund will not be easy.

Several board members have vested economic interests in maintaining the financial viability of “less dirty” energy approaches like “clean coal” and natural gas. And large transnational corporations, including Bank of America (dubbed “the coal bank” by activists), play a significant role in shaping the fund.

Scientists are telling us that we must get off fossil fuels fast. We’re already witnessing the devastating impacts of climate change on our neighbors and friends across the world. And for many national governments, funds to deal with the climate crisis are scarce.

The opportunity is clear. And common sense, not head-in-the-sand economic interests, must dictate action. The Green Climate Fund should take a lesson from ordinary investors all over the world who see that there’s no future in fossil fuels — not for their portfolios, and not for the planet.

Janet Redman is the director of the Climate Policy Program at the Institute for Policy Studies. Oscar Reyes, an associate fellow at the Institute for Policy Studies, helped launch climatemarkets.org.

7 Things to Look Out for in the UN's Green Climate Fund

February 13, 2014 ·

Green climate fund1. Is the GCF a Fund or a Bank?

The main purpose of the Green Climate Fund (GCF), put very simply, is to receive climate finance from developed countries (in accordance with their obligations under the UN Climate Convention) and disburse that money for activities in developing countries. But there are considerable signs of mission creep and the paperwork framing discussions in Bali contains numerous references to the revenue generating capacity of the Fund’s loans, and the potential for bonds, to replenish the Fund’s coffers.

A key part of the value in having a GCF lies in its ability to fund projects and programs that commercial lenders wouldn’t touch. The GCF should not aspire to be a World Bank for Climate Change, let alone its Goldman Sachs. If the GCF focuses on supporting projects that have genuine development benefits, including most of those that address the need for adaptation to the effects of climate change, it’s unlikely that it can at the same time generate sufficient returns on investment to keep the Fund afloat – and nor should it. Climate finance is an obligation of developed countries for their disproportionate role in causing climate change, and the GCF should be based on regular financial replenishments from developed countries, supplemented by innovative mechanisms like Financial Transaction Taxes.

2. Will the GCF fund fossil fuel infrastructure?

It is often difficult to see the wood for the trees within the thicket of paperwork that surrounds GCF Board meetings. But any mention of phasing out fossil fuels through a transition to renewable energy is conspicuous by its absence. Unless there’s a rapid about-turn the GCF could, perversely, become a major source of funding for fossil fuel infrastructure, even as other international financial institutions are belatedly moving to phase out some of the coal-fired excesses of their energy portfolios.

There are still some ways to prevent this fate. The Fund’s “initial results management framework” seeks to measure only tonnes of greenhouse gas emissions, but could instead set strict performance standards (or output limits) that would rule out dirty energy. The GCF could draw up an exclusion list of dirty energy project types. It should also adopt strong environmental and social safeguards, so as not to avoid promoting the displacement of people and biodiversity loss that comes with large hydroelectric dams, as much as with fossil fuel projects.

The prospects that the GCF will exclude dirty energy projects look slim, given that its Board contains several members keen to promote fossil fuels (and their proxies like “carbon capture and storage”), while large transnational corporations, including Bank of America (dubbed “the coal bank” by activists), play a significant role in shaping the Fund. But resistance to this corporate capture is growing.

3. Whatever happened to the promise of civil society participation?

The GCF Secretariat recently invited observers to an event in Bali, swiftly followed by two recall messages and an instruction to disregard the first message. This little administrative blunder is an apt metaphor for how the Fund treats currently civil society participation: “invite – recall – recall – please disregard.” The Governing Instrument (in effect, the Fund’s constitution) asks that the Board should “develop mechanisms to promote the input and participation of stakeholders, including private-sector actors, civil society organizations, vulnerable groups, women and indigenous peoples, in the design, development and implementation of the [Fund’s] strategies and activities.” But the proposals tabled for discussion at Bali backtrack on a lot of this.

The proposed process for approving GCF financing gives no clear idea as to when and how the views of “stakeholders” will be considered, not least communities where projects are located. The “no objection” procedure, introduced to ensure active engagement from civil societies in the development of the climate strategies funded by the GCF, is reduced to a box ticking exercise that can assume “tacit” consent for projects. Instead of the “participatory monitoring” that the Governing Instrument suggests, the monitoring of GCF activities could be limited to greenhouse gas calculations and cost-benefit analyses, offering limited insight into the wider benefits (or harms) that a broader, qualitative framing could show up.

Civil society groups are becoming increasingly agitated on these issues as past promises have not been kept. For example, having decided to appoint civil society representatives to its Private Sector Advisory Group, the GCF Board and Secretariat have apparently snubbed the representatives chosen by the coalition of civil society groups observing the Fund. Instead, secretariat staff cherry picked advisors.

4. Will the GCF balance mitigation and adaptation?

One of the key decisions that will be taken in Bali is on “allocation”, setting guidelines for how the GCF’s funding will be distributed. The headline figure here concerns the balance of mitigation (reducing future emissions) and adaptation (tackling climate change impacts that are already happening). An initial assessment by the Fund’s Secretariat suggests that it should aim for “50/50 as the medium-term allocation target.” But the proposal that the Board is being asked to decide upon magically transforms this into a “target range of 30-50 per cent for both adaptation and mitigation.” Fans of math will note that both targets could be hit without adding up to 100 per cent, whilst followers of climate finance have long complained that support for adaptation repeatedly falls short in the finance provided by developed countries and via other international financial institutions.

The Board will also discuss a target of 20 per cent of GCF financing going to its Private Sector Facility. As that’s widely expected to focus on mitigation, that could make any broader balance more difficult to achieve.

5. What protection will GCF environmental and social safeguards offer?

Safeguards set out some basic ground rules to ensure that finance will “do no harm”, a principle that encompasses social, gender, economic and environmental impacts. The GCF is formally committed to building upon the “best practice” elsewhere. Although no decision on safeguards will be taken until May 2014, the meeting in Bali will introduce the first draft of the Fund’s proposed safeguards. To describe these efforts as “disappointing” would be an understatement. The proposed standards offer a short and apparently voluntary set of guidelines based upon the UN’s Adaptation Fund, whose lending practice are far narrower and less risky than what the GCF is likely to engage in. As a broad coalition of civil society has already suggested, any safeguard policy worth its salt will be mandatory, and must be particularly careful in how it treats finance via intermediaries, with the Fund directly disclosing and monitoring the impacts of sub-projects.

6. What are “intermediaries” and why does their role keep expanding?

The role of intermediaries merits just one mention in the GCF Governing Instrument, but the scope and use of the term has grown considerably since then. In setting out how “direct access” to GCF financing will happen, a definition has now been offered of “intermediaries” that widens their scope still to include “financial structuring”, “origination of structured products for financial engineering” and “insurance mechanisms,” as well as other tasks “to be defined as they become relevant and appropriate.”

In the same vein, intermediaries are now defined as “a broad concept not limited to banking institutions.” That’s the equivalent of opening up the GCF to the murky world of shadow banking, where entities such as hedge funds or private equity funds could be recipients of GCF financing. Later in the year, the GCF Board will discuss offering other forms of financing, such as risk guarantees and taking equity (ownership) stakes in companies. It’s a worrying trajectory, although it’s not yet too late for the Fund to take a different path, rejecting a broad role for intermediaries and refocusing on the grant and concessional lending that the GCF has a mandate to engage in directly.

7. How concessional will GCF concessional lending be?

When the GCF finally starts funding projects, it will finance them through a mix of grants and concessional loans. The “concessional” part means offering rates that are more favorable than those available from commercial lenders, but the extent of the concession remain open for debate. The GCF secretariat is proposing to offer “softer” and “harder” concessional loans, but the terms of these compare unfavorably with those offered by the Clean Technology Fund (one of the World Bank-led Climate Investment Funds) and the International Development Association, the part of the World Bank Group that is generally seen as a standard-setter for “concessionality.”

The biggest issue here is that the GCF would set interest rates according to the “benchmark” for a chosen currency – US 10-year Treasury bond rates, or Euribor rates in the Eurozone. While those are at all-time lows, that’s not true globally. For example, benchmark rates in India are currently eight per cent, while in Nigeria they’re 12 per cent and close to 20 per cent in Argentina. By contrast, CTF and IDA concessional lending interest rates don’t rise about one and a half per cent. Adopting “benchmark” rates could discourage lending in local currencies, which is often key to both avoiding public indebtedness and allowing small to medium-sized enterprises to participate without significant risks.

Moreover, no definition is given as to whether interest rates would be fixed or variable during the period of concessional loans: if the latter, changes in interest rates for dollar loans could add billions to developing country debt, as happened following the Volcker shock when US rates rose sharply in the early 1980s. The GCF Board should reject this idea of “benchmark” rates. At the same time, it should also decide a clear policy to insist upon grants for public lending in so-called “vulnerable” countries, so as not to increase indebtedness.

The Green Climate Fund’s 6th Board meeting takes place from 19-21 February in Bali, Indonesia. More details of the IPS Climate Policy program’s work on the GCF can be found at www.climatemarkets.org

An Inside View on the Tricky World of Wall Street-Driven Climate Markets

April 18, 2013 ·

The World Bank likes to talk a good game on climate change. But when it comes to taking action, its approach can be “too narrowly focused, small scale and uncoordinated,” admits Bank President Jim Yong Kim. Worse still, it often backs entirely the wrong strategies, like carbon markets, while continuing to invest billions every year in new fossil fuel infrastructure.

Climate Finance Markets Site - www.climatefinance.org

VIEW NEW WEBSITE HERE: www.climatemarkets.org.

Since taking the helm, Jim Kim has made repeated promises that addressing climate change – and the devastating impacts it has on development – will be at the center of the Bank’s agenda. Key to this is a new Presidential Task Force on Climate Change, which will examine fossil fuel subsidies, carbon markets, “climate smart” agriculture, and partnerships to build cleaner cities. At the same time, the Bank’s low-income focused International Development Association (IDA), and its private sector arm, the International Finance Corporation (IFC), have both identified climate financing as a priority area.

The World Bank-IMF spring meetings convening in Washington DC provide an opportunity for the Bank to flesh out a new approach. The early signs are not promising, though. Carbon markets remain a central pole of the bank’s strategy, with $110 million pledged to a “Partnership for Market Readiness” that is encouraging the creation of new markets modeled on a European scheme that has already virtually collapsed.

There are indications, too, that much of the Bank’s “bold” new thinking is based on reaching out to the financial sector, using some of the same Wall Street tricks that proved so devastating for the United States and global economy in the 2008 crash. The Bank isn’t alone in this approach: the Green Climate Fund, and many of the other international financial institutions, are looking to encourage (“leverage”) private sector finance to plug the massive holes in climate financing left by industrialized countries failing to meet their obligations.

Dusting down the same old financial approaches isn’t going to work. In climate circles, it's already possible to hear the familiar refrain that rich-country austerity means that “There Is No Alternative” to courting the private sector. To which we’d respond: the United States is not broke, and neither are the other industrialized (“Annex I”) countries that should be making far larger public financial contributions and developing ambitious domestic plans to curb the greenhouse gas emissions that cause climate change. On the financial side, these could be supplemented by a range of genuinely “innovative” approaches, including financial transaction taxes, or a "Robin Hood tax."

We’ve set up a new website on Climate Finance and Markets (climatemarkets.org) to explore these new approaches, and to monitor how the World Bank, the Green Climate Fund and others are courting the financial sector.

The site, put together by IPS with the support of the Heinrich Böll Foundation North America, offers a range of materials that could help climate activists and advocates understand the new financial tools that are emerging, the role of key private sector actors (from banks to private equity funds), attempts to “leverage” private investment, and alternatives to this Wall Street-driven approach. Bank staff, public officials and journalists attending the World Bank-IMF spring meetings could even learn a thing or too as well.

Climate Finance Markets Site - www.climatefinance.org

See climatemarkets.org or follow us on Twitter @ClimateMarkets1

Robin Hood Tax, Not Corporate Greed, Should be Focus of Climate Finance Meetings, Say Activists

April 11, 2013 ·

Robin Hood Tax Action, Washington DCIPS joined other members of the U.S. Robin Hood Tax campaign in Washington DC, where officials from the finance and climate ministries of select developed countries met to discuss how to mobilize private sector investment in developing countries to address climate change. Chanting, "Human need, not corporate greed! Robin Hood Tax now!" protesters dressed as polar bears, farmers, and bankers engaged with officials entering the meeting to urge them to support a Robin Hood Tax.

This demonstration drew attention to the fact that trillions of dollars of public money have been spent to bail out Wall Street while government officials pay short shrift to untapped and extremely promising innovative sources of public money like a Robin Hood Tax. In doing so, officials risk putting corporate profits over the needs of climate-impacted people.

Robin Hood Tax Action, Washington DC

Both the financial crisis and the recession have left a massive hole in public finances, threatening job creation, community services, and the ability to address climate change. While Wall Street has already bounced back, ordinary people are still trying to recover from problems caused by corporate abuse in the financial sector. The Robin Hood Tax calls for the institution of a small tax of less than half of one percent on Wall Street transactions in order to generate many billions of dollars each year toward crucial public goods and services, like healthcare, education, and helping the world’s poor confront the climate crisis. 

VIEW RECENT ARTICLE ON CLIMATE FINANCE BY JANET REDMAN: http://www.fpif.org/articles/wall_streets_climate_finance_bonanza 

Robin Hood Tax Action, Washington DC

Robin Hood Tax Action, Washington DC

Robin Hood Tax Action, Washington DC

Wall Street's Climate Finance Bonanza

April 10, 2013 ·

Government officials from an elite group of developed countries meeting in Washington, D.C. at the invitation of U.S. climate envoy Todd Stern appear to be on the brink of instigating yet another corporate handout and big bank giveaway—this time in the name of fighting climate change.

Robin Hood Tax - photo courtesy of tcktcktck.orgIf it follows a recently leaked agenda, the meeting will focus on using capital markets to raise money for climate finance. The goal is to fill the void left by the United States and other developed nations that have failed to meet their legal obligations to deliver funding to poorer countries for climate programs.

In this corporate-oriented approach, countries would provide generous loan guarantees and export subsidies that sweeten investments for private firms and give them the chance to net big profits while leaving governments (and the taxpayers they represent) to cover the losses if investors’ bets don’t pay off. Wealthy countries would then be able to claim that they had moved billions of dollars of new climate investments.

Unfortunately, the projects best placed to benefit from large-scale private investment and market mechanisms—like mega-infrastructure projects and fossil fuel-powered ventures that hide behind a “low-carbon” label—are likely to be those that have fewest sustainable development benefits. In many cases, the funding will channel windfall profits to corporations that would have invested profitably even without these new channels of support. 

The sad fact is that this has happened before. Nations spent five years negotiating the Kyoto Protocol—the only multilateral treaty to regulate emissions of greenhouse gasses and spell out binding targets for reducing climate pollution. But before the treaty was finalized in 1997, the United States led a push to replace the enforcement mechanism—a fine for missing reduction targets paid into a clean development fund—with a market mechanism meant to lower the cost of compliance for polluting companies. The accompanying clean development mechanism (CDM) was born so that companies in the industrialized world could purchase ultra-cheap carbon pollution credits from developing nations to offset their continued pollution at home.

In the end the United States pulled out of the Kyoto treaty. But by shifting a global regulatory regime into a market-based regime centered on enticing private-sector investment with promises of profitability, Washington left its mark.

A decade and half later, carbon markets have collapsed, developing countries are awash with carbon credits for which there is no demand, and the planet keeps getting warmer.

Meanwhile, the clean development mechanism has led to private sector investment in spurious projects like mega-hydropower dams and coal-fired power plants that have delivered little in the way of sustainable development outcomes—and in some cases have further harmed the environment and human health.

Passing the Buck

And now Washington is at it again, hijacking the debate about how to support the global transition to a low-carbon, climate-resilient economy—and keeping the public, the press, and even developing countries out of the conversation. They’re repeating the same tired story that rich governments are broke and thus have to call in the private sector to finance climate change solutions.

In today’s economy, mobilizing private finance means going to the capital markets to raise money. But relying on financial markets for funding to support renewable, clean energy or to resettle climate refugees would subordinate climate action to the speculative whims of bankers.

Americans have visceral reminders of the consequences of leaving decisions about critical needs to the market—the more than 1.6 million families locked out of their homes and the $2.5 trillion in taxpayer dollars handed over to bail out Wall Street and U.S. car companies are just two. Europeans can point to the recent bailout after the carbon bubble burst. If a global climate finance bubble were to burst, we wouldn’t just lose our houses; we might have lost our chance at averting catastrophic global warming.

Governments in the developed world shouldn’t pass the buck to the private sector. They must act now. They can start by cutting subsidies for fossil fuels, including for natural gas “fracking” in the United States, and set binding regulation for reducing climate change pollution. Then governments can adopt innovative ways to raise public money, like taxing pollution from shipping or financial transactions. Indeed, even a very low financial transactions tax would generate substantial revenue and deleverage capital markets.

And of course, if there is any hope of creating a new paradigm of climate-sound development, there will have to be a role for the private sector. But the micro, small, and medium enterprises of the developing world would be preferable partners to the multinational firms that have been responsible for sucking wealth and resources out of countries for decades, leaving pollution and poverty in their wake.

At some point—and for the sake of the future generations who will bear the results of our decisions, we hope it’s sooner rather than later—the government officials who place their bets on private finance will have to learn that putting corporate profits over the needs of climate-impacted people is a risk the rest of us are not willing to take.

Antonio Tricarico is director of the New Public Finance program of the Italian organization Re:Common based in Rome and a former economic correspondent at the Italian newspaper Il Manifesto.

Janet Redman is the co-director of the Sustainable Energy and Economy Network at the Institute for Policy Studies in Washington, DC.

Editorial support by Peter Certo and Oscar Reyes of the Institute for Policy Studies.

** This piece originally appeared in Foreign Policy In Focus

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