Smart Unconventional Monetary (SUMO) policies: giving impetus to green investment

17 July 2014 - Climate Report

Today, given the amount of investment needed to reach a 2-degree emissions reduction target and the tight budgetary constraints of governments worldwide, public spending alone will not be sufficient alone. Therefore, there is a double need to not only shift private financial flows from “brown” sectors to “green” sectors, but also to leverage new sources of financing.

Addressing the second challenge, this study reviews three families of proposed funding mechanisms based on unconventional monetary policies targeting “green” or “climate” investments. These “Smart Unconventional MOnetary” (or SUMO) policies include: (i) the use of Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF), (ii) green quantitative easing and (iii) the issuance of Carbon Certificates.

Proponents of these mechanisms assert that they have a strong potential to provide substantial low-cost financing for green projects and reduce the risks linked to green investments for private investors. Furthermore, they could have further macro-economic co-benefits in specific circumstances. For example, implemented jointly with appropriate “demand-side” mechanisms, a SUMO policy mechanism, even if short-term, could help trigger investment, bank lending and growth in Europe and pave the way for a longer-term green policies’ framework.

Nevertheless, this analysis has identified that the implementation of such mechanisms has a number of challenges to overcome. The first challenge is to convince policy makers that these mechanisms, even if they resort to unconventional monetary policies, will not lead to inflation. The second challenge is the difficulty to reach multilateral agreements in the short run, because of geopolitical and institutional barriers. The third challenge is the necessity to involve the private sector.

Furthermore, to facilitate their contribution to low-carbon investment, this analysis suggests that ensuring the environmental integrity, both ex-ante – during the selection of eligible projects – and ex-post – will be key. This can be done through the implementation of Monitoring, Reporting and Verification (MRV) mechanisms. Initial lessons are drawn from the Clean Development Mechanism as well as other existing schemes (white certificates, etc.).

If these proposals are to be seen as credible, it appears that further research is necessary on the potential volume – both environmental (GHG reduction) and financial – of these unconventional mechanisms, as well as on their ecological and economic consequences and their adaptability to emerging and developing economies.

Smart Unconventional Monetary (SUMO) policies: giving impetus to green investment Download
See appendices
  • SUMO Policies – Appendix I: Special Drawing Rights Download
  • SUMO policies – Appendix II: Green Quantitative Easing Download
  • SUMO Policies – Appendix III: Carbon Certificates Download
To learn more
  • 04/19/2024 Foreword of the week
    World bank and IMF Spring Meetings: How can the reformed institutions play a leading role in funding the transition?

    Rethinking how development can be financed to take into account the rising challenges of our time is a fastidious task, especially when thousands of experts, decision makers and practitioners want to leave their print. The outline of the new international financial architecture is being debated again this week, with more questions open for discussion than consensus on the answers. 

  • 04/19/2024 Blog post
    More and better finance: maximising positive climate impacts for a timely transition 

    Since the Paris Agreement in 2015, significant strides have been made to foster the commitment of countries and financial institutions to address the climate crisis and ensure that climate risks and opportunities are considered in investments. However, with emissions required to peak before 2025, our window of opportunity is rapidly closing to keep +1.5°C within reach. Financial needs to lower greenhouse gas (GHG) emissions and to address adaptation priorities are increasing rapidly in the meantime. Luis Zamarioli Santos and Diana Cárdenas Monar, from I4CE, believe that commitment must urgently translate into action, and action must bring the urgent change the world needs. Both governments and public financial institutions have a central role to play to deliver more and better finance, maximising positive impacts. This blogpost highlights some opportunities to advance in the path for a systemic transformation, involving key stakeholders with a whole-economy approach.  

  • 04/17/2024
    Ambitious alignment with the Paris Agreement in public development banks

    At the Spring Meetings, during an event with senior climate representatives from Multilateral Development Banks, I4CE, E3G, Germanwatch and NewClimate Institute officially launched a common position paper on what ambitous Paris alignment means for public development banks. This paper summarises years of research on Paris alignment to shed light on best practice and hopefully support decision makers in taking and implementing credible climate commitments. 

See all publications
Press contact Amélie FRITZ Head of Communication and press relations Email
Subscribe to our mailing list :
I register !
Subscribe to our newsletter
Once a week, receive all the information on climate economics
I register !