A Ventured Essay about a Climate-Friendly Global Financial Architecture

A Ventured Essay about a Climate-Friendly Global Financial Architecture / Jean-Charles Hourcade, Baptiste Perrissin Fabert, Julie Rozenberg. Paris : CIRED, April 2011, 26 p. (WP 2011-31)
http://www.centre-cired.fr/IMG/pdf/CIREDWP-201131b.pdf

The Cancun agreement recognizes that, in the absence of carbon prices, climate finance is a critical tool to align development objectives with low carbon bifurcations. A significant part of the world savings has to be redirected towards low carbon projects (LCPs) to avoid emerging economies’ lock-in in carbon intensive development patterns. In this paper we design a climate-friendly global financial architecture that would help countries to get a comprehensive climate deal and scale-up current flows of climate finance. We first examine the necessary conditions for climate finance to trigger a virtuous circle of confidence among investors. Then we show that an agreement at a future COP on the value of the Social Cost of Carbon (SCC) and the recognition of resulting carbon assets by central banks as new legal reserves is decisive to leverage investments for LCPs. Eventually, we suggest that, in the aftermath of the financial crisis the full deployment of such devices would be facilitated if the IMF was allowed to recognize carbon assets as new international reserve assets in proportion to countries’ investments in LCPs. Besides, this deployment could contribute to calm current concerns about the immediate future of economic growth and the stability of the monetary and financial system (© CIRED)


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