IMF PLANS $112bn CLIMATE MITIGATION FUND

From correspondents in Davos, Switzerland From: AFP February 01, 2010 7:51AM

THE International Monetary Fund is planning a $US100 billion ($112 billion) fund to help countries mitigate the effects of climate change, the agency's head said.

"The new growth model will be low carbon," Dominique Strauss-Kahn, managing director of the IMF, told political and business leaders meeting at the World Economic Forum in the Swiss ski resort of Davos this weekend.

Efforts to deal with climate change could not be blocked "just because we cannot meet the financing needs", he said.

Developing countries do not have the funds for these adaptation measures, and developed countries' ability to pay is also limited as they are now weighed down by debt after funds were used to deal with the financial crisis.

It was therefore necessary to "think out of the box" on the issue of funding, the IMF chief said.

"We'll have to find innovative ways to finance it," Mr Strauss-Khan said on Saturday.

"We're going to provide some ideas, built around a Green Fund devoted to finance $US100 billion a year which is the figure currently accepted for addressing the problem based on the capitalisation coming from central banks, backed by special drawing rights issued by the fund," he said.

Special drawing rights are an international reserve asset created by the IMF in 1969 as a supplement to member states' official reserves. They can be exchanged for common currencies.

The IMF said on its website that it would issue a paper detailing ideas on how the fund would be financed.

The United Nations has said governments should invest in the green sector as they try to create new jobs in the wake of the economic crisis, as it would also help move towards a greener society.

Jamie Drummond, executive director of campaign group ONE, which was co-founded by U2 singer Bono, said the IMF's move for a green fund was a "significant and positive development which, if approved in its most positive form, could seriously help catalyse the financing of a transition to low-carbon economic growth in developing countries."

However, the advocacy group said that large sums of financing are still needed on top of the IMF fund to help poor countries deal with the effects of climate change immediately.

"As the fund would give concessional loans this does not replace the need for significant additional grant financing to help the poorest countries adapt right now to the impacts of climate change," said the group.

The IMF's plans must be "urgently analysed ... and then the solutions must be urgently implemented", it said.

In an 11th-hour deal, the Copenhagen Accord emerged out of the UN's global summit on climate change in December.

The accord calls for limiting warming to 2C, the threshold set by many climate scientists.

It also commits rich countries to paying out about $US30 billion ($33.5 billion) in total over the next three years, and $US100 billion annually by 2020, to help poor nations fight climate change and cope with its consequences.

Countries are being asked to indicate if they will endorse the deal.