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The European Central Bank (ECB) is standing in the way of a plan by African and Latin American development banks to mobilise large amounts of finance to tackle climate change.
The Frankfurt-based ECB sets rules for the 20 European countries that use the Euro currency, and has told their national central banks not to re-channel a type of financial asset known as special drawing rights (SDRs) to multilateral development banks (MDBs).
This has scuppered an attempt by the African Development Bank (AfDB) and Inter-American Development Bank (IDB) to persuade rich nations to give their SDRs to them – where they argue the money can go further – rather than back to the International Monetary Fund (IMF).
SDRs are issued by the IMF as a way of supplementing its member countries’ foreign exchange reserves, allowing them to reduce their reliance on more expensive domestic or external debt for building reserves. They can be held and used by member countries, the IMF and designated official entities called “prescribed holders”, which include some central banks and regional development banks. Governments will discuss how they are used at the IMF’s annual meeting in Washington DC this week.
Pepukaye Bardouille, special adviser on climate resilience to the Barbados prime minister, told Climate Home in a press briefing last week that Eurozone countries “have struggled” to give their SDRs to the AfDB and IDB “because of restrictions of the [ECB] that hinder their ability to re-channel”.
Laurence Tubiana, CEO of the European Climate Foundation, said during the same briefing that the ECB’s rules are a “problem”, noting that central banks “are very averse to risk”. “All this money sitting in central banks doesn’t really work for development and for all the big issues we have to face,” she said. This is a moment where we “have to open all the boxes” of finance, she added.
Laurence Tubiana as a UN high level climate champion in 2016 (Pic: UNFCCC/Flickr)
Explaining the ECB’s reluctance in a recent online article for the Center for Global Development, leading economists Vera Songwe and Mark Plant wrote that central banks use their reserves to ensure the smooth flow of trade and to support their currencies.
“They loathe using them to pay for current spending or investments in their own countries, much less others,” they explained. “Lending to MDBs is seen as chipping away at high-income countries’ financial safety margins to help bail out developing countries that are a world away.”
Pandemic bail-out cash
When the COVID-19 pandemic hit the global economy, cash-strapped developing countries and small island states that cannot borrow easily because of low credit ratings asked the IMF for financial support.
The IMF responded by issuing $650 billion worth of SDRs. By default, these are allocated to countries according to the size of their economy which meant that the bigger, richer nations got the most, despite needing the least.
At the time, IMF Managing Director Kristalina Georgieva urged rich nations to re-allocate their SDRs to smaller, poorer nations. The IMF set up two funds called the Resilience and Sustainability Trust (RST) and the Poverty Reduction and Growth Trust (PRGT) – and rich nations re-allocated some of their SDRs to those.
In March 2023, the RST approved its first batch of loans, including $764 million for Jamaica to invest in renewables and energy efficiency.
Parametric triggers: How small islands can escape climate-poverty trap
But critics pointed out that the RST adds to national debt burdens and only countries with an existing IMF programme can access it, excluding many in need.
The AfDB and the IDB argued that channeling the money to them – instead of to the RST – would allow them to “leverage SDRs by up to four times their value in the form of loans to finance social and climate projects”. As the RST is not a bank, its ability to leverage is limited.
AfDB President Akinwumi Adesina said in May that the proposal was “an innovative approach through which development financing can be mobilized with a multiplier effect and at no cost to taxpayers. These are the types of solutions we need to help us tackle Africa’s growing development challenges.”
ECB’s cold water
But the proposal has received little interest. According to Songwe and Plant, no countries have taken the AfDB and IDB up on their proposal.
While the IMF gave it the green light in May, the ECB president Christine Lagarde said in 2022 that it “would not be compatible with the EU’s legal framework” for Eurozone nations to take part.
Since then, the ECB has continued to encourage Eurozone countries to channel their SDRs into the IMF’s two funds, but considers redirecting them outside of the IMF to be incompatible with the EU constitution’s ban on monetary financing.
The European Council has made a formal exception for rechannelling SDRs to the IMF because it considers them still to be reserve assets.
The ECB believes the proposal is incompatible with Article 123(1) of the Treaty on the Functioning of the European Union
While France and Italy have supported re-allocating SDRs to MDBs, the German central bank has opposed re-allocating SDRs, even to the IMF.
Tubiana said reform of the ECB to allow re-allocating SDRs to MDBs “seems very, very far away”, adding that if Germany and the rest of the Eurozone states feel unable to do this, they could issue their own bonds to offer cheaper capital for climate finance.
Songwe and Plant argue that, to avoid the same hurdle next time SDRs are dished out, MDBs should be given them directly rather than asking wealthy governments to re-allocate them. This would, however, require agreement from 85% of the IMF’s executive board, which is “no small feat in today’s politically fractured world”, the economists warned.
(Reporting by Joe Lo; editing by Megan Rowling)
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European Central Bank holds back plan to boost climate finance for Africa, Latam
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Prepared by a coalition of nine Western Australian union, industry, conservation, and community organisations—including UnionsWA, the Conservation Council WA, and the Smart Energy Council—the WA Clean Energy, Jobs & Industry Plan provides a practical roadmap to transform Western Australia into a clean energy powerhouse while creating thousands of secure local jobs.
Western Australia stands at a pivotal crossroads: lead the global clean energy economy or watch investment, future industries, and secure jobs go elsewhere. The WA Clean Energy, Jobs & Industry Plan outlines a transformative blueprint to harness the state’s world-class solar and wind resources. Discover how legislated renewable targets, green iron manufacturing, and a dedicated regional training strategy can generate tens of thousands of local jobs, lower household bills, and build a resilient, net-zero future for all Western Australians.
WA needs a clear and forward-thinking plan if it is going to become a competitive renewable energy powerhouse and maintain its economic strength through the energy transition.
“Western Australians know a faster renewable energy transition will lower their household expenses and prevent harmful climate pollution. But the community also needs clear direction to ensure this transition will create jobs, lower costs and not cause undue environmental harm.
“Here, sectors representing a broad range of interests have laid the groundwork for those outcomes, clearly outlining what is needed to create a future for WA that is good for the environment, for the climate, for workers and for the economy.
Summary
The WA Clean Energy, Jobs & Industry Plan sets out a strategic roadmap to position Western Australia as a global clean energy superpower while creating thousands of secure local jobs.
The report establishes three overarching goals:
- Creating local employment.
- Maintaining industrial competitiveness.
- Lowering household energy costs
To realize this vision, the framework details actionable measures to follow on from the recent WA Government announcement of a 75% Renewable Energy Target by 2031 for the South West Interconnected System. This includes developing a statewide Renewable Energy Target, coordinating statewide workforce and training pipelines, strategically planning regional infrastructure to safeguard high-value biodiversity and cultural heritage, and ensuring equitable benefit-sharing through household electrification incentives and First Nations equity partnerships. Ultimately, the plan highlights that establishing clear policy and regulatory certainty will unlock lower energy bills, boost power reliability, and secure the state’s global competitiveness in emerging green commodity export markets.
Key Findings
- Statewide Renewable Energy Target and Emissions Reduction Targets: The report calls for a statewide RET and 1.5°C aligned emission reduction targets to remove policy risk, lower capital costs, and attract clean energy investment.
- Transformative Job Creation: Accelerating the transition offers massive employment prospects, including up to 8,800 solar and battery jobs by 2050, as well as 24,000 ongoing and 11,000 construction jobs in a commercial green iron industry.
- Industrial Electrification & Competitiveness: Requiring large gas users to adopt binding electrification timetables and providing concessional financing will protect existing energy-intensive manufacturers from rising energy costs and impending domestic gas shortfalls.
- Green Commodity Export Leadership: Western Australia can build new export markets in green iron, green ammonia, and offshore oil/gas decommissioning by constructing shared common-user infrastructure and setting dedicated Green Commodity Export Targets.
- Coordinated Workforce & Training Pipeline: To address critical skill shortages the plan recommends establishing a WA Clean Energy Jobs Plan 2050, three regional training hubs, and dedicated pathways for female and under-represented apprentices.
- Environmental Safeguards & Community Benefits: Fast-tracked development must be paired with State Planning Policies that avoid high-biodiversity and cultural heritage lands, mandate new data centres to run on additional renewable power, and deliver household electrification rebates and First Nations equity partnerships.
What you can do
WA has an opportunity to lead on sustainable, clean energy and associated industries. You can help by:
- Sending an email to Environment Minister Murray Watt and Prime Minister Anthony Albanese, calling on them to reject Browse.
- Sharing this story to help more Australians understand what’s at stake.
- Encouraging your friends and family to take action.
Countries have completed the first “global review” of their progress towards reversing nature loss by 2030 at the COP17 biodiversity talks in Yerevan, Armenia.
The review “notes with deep concern” that, unless action is “rapidly accelerated”, the goal to reverse nature loss and meet a set of 23 targets by 2030 “will not be achieved”.
It “urges” countries to accelerate action, including by “increased ambition in addressing the gaps”.
Much of the discussions in Yerevan focused on how to raise the necessary funds to help developing countries protect nature.
Some major economies pushed to expand the range of nations that are expected to provide finance, with countries agreeing at the end of the two weeks of talks that non-donors that want to contribute can “signal interest” before COP18.
This came after developed countries failed to meet a target to significantly ramp up nature finance over the last few years.
It also came as a landmark fund agreed at COP16 in Colombia to pay communities for the genetic resources derived from nature stands nearly empty two years on.
The Yerevan talks marked the halfway point of the “Kunming-Montreal Global Biodiversity Framework” (GBF), the “Paris Agreement for nature” first made in 2022 and due to be achieved by 2030.
During the nearly 12-hour-long final plenary, countries voted for Quito, Ecuador, to host the COP18 nature talks, which will be held in 2028.
Countries managed to sign off on all the major negotiation texts, marking a stark contrast to COP16, which ran so far over time that the Colombian presidency lost “quorum”, forcing talks to resume in Rome months later.
Below, Carbon Brief has detailed analysis of all of the key outcomes from COP17.
Formal negotiations
Finance
Finance, predictably, was at the heart of the discord and deadlock at the Yerevan talks.
At COP17, discussions on finance had to achieve several outcomes.
The first part – to take stock of biodiversity finance mobilised so far to meet the nature deal’s goals – fell under the global review.
As the global report noted, developed countries failed to meet their commitments to raise “at least $20bn a year by 2025” for nature. Delegates pointed to falling aid levels and a sharp 27% decline in environmental funding for the 2026-30 period.
The second part was to agree on how to mobilise resources for the next four years, to meet the GBF’s goals and targets.
Calls to “broaden the contributor base” of who pays to protect nature – and whether that should include emerging economies – became the most fraught element of the talks.
Eventually, countries agreed on what Switzerland described as a “super, mega-delicate” text. It hinged on major “political compromises”, with “no major winner or loser”, according to Kenya.
Per the decision, countries that want to be included on a list of developed country donors can “signal interest” through bilateral, confidential consultations before COP18 and every alternate COP after.
Finally, countries also agreed on criteria to shape and resource a new, permanent financial mechanism to protect nature after 2030.
However, this did not immediately take the form of a new fund under the COP that biodiverse countries have demanded since 2022, deferring the mechanism’s institutional structure to COP18.
Resource mobilisation discussions at the GBF’s halfway mark were supposed to agree on how to close the “biodiversity finance gap” and to “increase resources from all sources” to “at least” $200bn per year by 2030, as set out in target 19 of the GBF.
The talks were largely dominated by a push, led by the JUSCANZ bloc of developed countries, to “broaden the contributor base”. This could see emerging economies, such as Qatar, China, Saudi Arabia and India, being added to the list of countries that pay to protect nature.