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)
The post European Central Bank holds back plan to boost climate finance for Africa, Latam appeared first on Climate Home News.
European Central Bank holds back plan to boost climate finance for Africa, Latam
Climate Change
Big fishing nations secure last-minute seat to write rules on deep sea conservation
As a treaty to protect the High Seas entered into force this month with backing from more than 80 countries, major fishing nations China, Japan and Brazil secured a last-minute seat at the table to negotiate the procedural rules, funding and other key issues ahead of the treaty’s first COP.
The Biodiversity Beyond National Jurisdiction (BBNJ) pact – known as the High Seas Treaty – was agreed in 2023. It is seen as key to achieving a global goal to protect at least 30% of the planet’s ecosystems by 2030, as it lays the legal foundation for creating international marine protected areas (MPAs) in the deep ocean. The high seas encompass two-thirds of the world’s ocean.
Last September, the treaty reached the key threshold of 60 national ratifications needed for it to enter into force – a number that has kept growing and currently stands at 83. In total, 145 countries have signed the pact, which indicates their intention to ratify it. The treaty formally took effect on January 17.
“In a world of accelerating crises – climate change, biodiversity loss and pollution – the agreement fills a critical governance gap to secure a resilient and productive ocean for all,” UN Secretary-General António Guterres said in a statement.
Julio Cordano, Chile’s director of environment, climate change and oceans, said the treaty is “one of the most important victories of our time”. He added that the Nazca and Salas y Gómez ridge – off the coast of South America in the Pacific – could be one of the first intact biodiversity hotspots to gain protection.
Scientists have warned the ocean is losing its capacity to act as a carbon sink, as emissions and global temperatures rise. Currently, the ocean traps around 90% of the excess planetary heat building up from global warming. Marine protected areas could become a tool to restore “blue carbon sinks”, by boosting carbon absorption in the seafloor and protecting carbon-trapping organisms such as microalgae.
Last-minute ratifications
Countries that have ratified the BBNJ will now be bound by some of its rules, including a key provision requiring countries to carry out environmental impact assessments (EIA) for activities that could have an impact on the deep ocean’s biodiversity, such as fisheries.
Activities that affect the ocean floor, such as deep-sea mining, will still fall under the jurisdiction of the International Seabed Authority (ISA).
Nations are still negotiating the rules of the BBNJ’s other provisions, including creating new MPAs and sharing genetic resources from biodiversity in the deep ocean. They will meet in one last negotiating session in late March, ahead of the treaty’s first COP (conference of the parties) set to take place in late 2026 or early 2027.
China and Japan – which are major fishing nations that operate in deep waters – ratified the BBNJ in December 2025, just as the treaty was about to enter into force. Other top fishing nations on the high seas like South Korea and Spain had already ratified the BBNJ last year.
Power play: Can a defensive Europe stick with decarbonisation in Davos?
Tom Pickerell, ocean programme director at the World Resources Institute (WRI), said that while the last-minute ratifications from China, Japan and Brazil were not required for the treaty’s entry into force, they were about high-seas players ensuring they have a “seat at the table”.
“As major fishing nations and geopolitical powers, these countries recognise that upcoming BBNJ COP negotiations will shape rules affecting critical commercial sectors – from shipping and fisheries to biotechnology – and influence how governments engage with the treaty going forward,” Pickerell told Climate Home News.
Some major Western countries – including the US, Canada, Germany and the UK – have yet to ratify the treaty and unless they do, they will be left out of drafting its procedural rules. A group of 18 environmental groups urged the UK government to ratify it quickly, saying it would be a “failure of leadership” to miss the BBNJ’s first COP.
Finalising the rules
Countries will meet from March 23 to April 2 for the treaty’s last “preparatory commission” (PrepCom) session in New York, which is set to draft a proposal for the treaty’s procedural rules, among them on funding processes and where the secretariat will be hosted – with current offers coming from China in the city of Xiamen, Chile’s Valparaiso and Brussels in Belgium.
Janine Felson, a diplomat from Belize and co-chair of the “PrepCom”, told journalists in an online briefing “we’re now at a critical stage” because, with the treaty having entered into force, the preparatory commission is “pretty much a definitive moment for the agreement”.
Felson said countries will meet to “tidy up those rules that are necessary for the conference of the parties to convene” and for states to begin implementation. The first COP will adopt the rules of engagement.
She noted there are “some contentious issues” on whether the BBNJ should follow the structure of other international treaties such as the Convention on Biological Diversity (CBD), as well as differing opinions on how prescriptive its procedures should be.
“While there is this tension on how far can we be held to precedent, there is also recognition that this BBNJ agreement has quite a bit to contribute in enhancing global ocean governance,” she added.
The post Big fishing nations secure last-minute seat to write rules on deep sea conservation appeared first on Climate Home News.
Big fishing nations secure last-minute seat to write rules on deep sea conservation
Climate Change
Climate at Davos: Energy security in the geopolitical driving seat
The annual World Economic Forum got underway on Tuesday in the Swiss ski resort of Davos, providing a snowy stage for government and business leaders to opine on international affairs. With attention focused on the latest crisis – a potential US-European trade war over Greenland – climate change has slid down the agenda.
Despite this, a number of panels are addressing issues like electric vehicles, energy security and climate science. Keep up with top takeaways from those discussions and other climate news from Davos in our bulletin, which we’ll update throughout the day.
From oil to electrons – energy security enters a new era
Energy crises spurred by geopolitical tensions are nothing new – remember the 1970s oil shock spurred by the embargo Arab producers slapped on countries that had supported Israel during the Yom Kippur War, leading to rocketing inflation and huge economic pain.
But, a Davos panel on energy security heard, the situation has since changed. Oil now accounts for less than 30% of the world’s energy supply, down from more than 50% in 1973. This shift, combined with a supply glut, means oil is taking more of a back seat, according to International Energy Agency boss Fatih Birol.
Instead, in an “age of electricity” driven by transport and technology, energy diplomacy is more focused on key elements of that supply chain, in the form of critical minerals, natural gas and the security buffer renewables can provide. That requires new thinking, Birol added.
“Energy and geopolitics were always interwoven but I have never ever seen that the energy security risks are so multiplied,” he said. “Energy security, in my view, should be elevated to the level of national security today.”
In this context, he noted how many countries are now seeking to generate their own energy as far as possible, including from nuclear and renewables, and when doing energy deals, they are considering not only costs but also whether they can rely on partners in the long-term.
In the case of Europe – which saw energy prices jump after sanctions on Russian gas imports in the wake of Moscow’s invasion of Ukraine – energy security rooted in homegrown supply is a top priority, European Commission President Ursula von der Leyen said in Davos on Tuesday.
Outlining the bloc’s “affordable energy action plan” in a keynote speech at the World Economic Forum, she emphasised that Europe is “massively investing in our energy security and independence” with interconnectors and grids based on domestically produced sources of power.
The EU, she said, is trying to promote nuclear and renewables as much as possible “to bring down prices and cut dependencies; to put an end to price volatility, manipulation and supply shocks,” calling for a faster transition to clean energy.
“Because homegrown, reliable, resilient and cheaper energy will drive our economic growth and deliver for Europeans and secure our independence,” she added.
Comment – Power play: Can a defensive Europe stick with decarbonisation in Davos?
AES boss calls for “more technical talk” on supply chains
Earlier, the energy security panel tackled the risks related to supply chains for clean energy and electrification, which are being partly fuelled by rising demand from data centres and electric vehicles.
The minerals and metals that are required for batteries, cables and other components are largely under the control of China, which has invested massively in extracting and processing those materials both at home and overseas. Efforts to boost energy security by breaking dependence on China will continue shaping diplomacy now and in the future, the experts noted.
Copper – a key raw material for the energy transition – is set for a 70% increase in demand over the next 25 years, said Mike Henry, CEO of mining giant BHP, with remaining deposits now harder to exploit. Prices are on an upward trend, and this offers opportunities for Latin America, a region rich in the metal, he added.
At ‘Davos of mining’, Saudi Arabia shapes new narrative on minerals
Andrés Gluski, CEO of AES – which describes itself as “the largest US-based global power company”, generating and selling all kinds of energy to companies – said there is a lack of discussion about supply chains compared with ideological positioning on energy sources.
Instead he called for “more technical talk” about boosting battery storage to smooth out electricity supply and using existing infrastructure “smarter”. While new nuclear technologies such as small modular reactors are promising, it will be at least a decade before they can be deployed effectively, he noted.
In the meantime, with electricity demand rising rapidly, the politicisation of the debate around renewables as an energy source “makes no sense whatsoever”, he added.
The post Climate at Davos: Energy security in the geopolitical driving seat appeared first on Climate Home News.
Climate at Davos: Energy security in the geopolitical driving seat
Climate Change
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