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IMFSurvey Magazine: Policy

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Climate Policy and Economic Recovery

Climate Change Takes Center Stage At Copenhagen

IMF Survey online

December 7, 2009

Negotiations toward a successor to the Kyoto Protocol are intensifying, and domestic climate policies being formed, at the start of a critical United Nations conference on climate change in Copenhagen taking place December 7-18.

At the same time, policymakers are searching for new sources of sustainable growth to recover from the deepest economic crisis for decades and, in many cases, also the means to cope with severe fiscal pressures exacerbated by the crisis.

The crisis has had major effects on the global economy, but these detract little from the urgent need to combat climate change. The International Energy Agency (IEA) forecasts that declining economic activies could lead to global greenhouse gas (GHG) emissions falling by more than 2.5 percent in 2009 (having increased rapidly in recent years). But the damage from climate change—predicted by the Stern Review, for example, to be highly significant in the future, particularly in developing countries—arises not from the flow of GHGs but from the accumulated stock. And the sheer scale existing stock, and its very slow decay, mean that even quite large reductions in emissions can make little dent on it.

IMF Managing Director Dominique Strauss Kahn has said that the global economic crisis must not distract us from tackling the important issue of climate change. “Sustaining the recovery and putting in place effective climate change policies can be mutually reinforcing with the right policies implemented resolutely,” he said. “Global cooperation, including among IFIs, will help countries to confront the challenges from climate change. These require innovative and long-term solutions, which have a part to play in supporting the recovery and sustainable growth. The IMF can assist in its areas of expertise to advise on policies and support countries that are most vulnerable to economic and climate challenges,” Strauss-Kahn noted.

Market failures

Fundamentally, the market failures underlying the climate problem—above all, that polluters do not bear the full costs of emissions—are unaffected by the downturn.

Current mitigation efforts are now generally acknowledged to be inadequate for meeting the economic, social and political problems climate change can create: even accounting for the effects of the crisis global emissions could rise by 40 percent against current levels by 2030, without further policy intervention. Broader and deeper international measures to raise the cost to firms and households of emitting greenhouse gases therefore remains a key priority in the coming years.

The full Finance & Development will be published on December 11.

However, political focus on restoring economic prosperity could weaken the prospects for such measures. Yet a cautious shift toward more aggressive carbon pricing need not impede the recovery. And currently more moderate carbon and energy prices, as well some potential for “green” fiscal stimulus measures, afford important opportunities that should not be overlooked.

New IMF paper

Ahead of the conference, being attended by delegates from 192 countries, the IMF published a paper on “Climate Policy and the Recovery” that considers the challenge posed by the twin policy imperatives: how to exit from the crisis while developing an effective response to climate change.

At the same time, the IMF is publishing a series of articles on climate change in its quarterly magazine Finance & Development and on its blog, iMFdirect.

Read the articles

Articles in Finance & Development

Climate Policy in Hard Times

Benjamin Jones and Michael Keen

Restoring economic growth after the global financial crisis need not thwart the fight against climate change. Carbon pricing can strengthen fiscal positions, and improved climate resilience can promote macroeconomic stability.

A Changing Climate for Development

Kirk Hamilton and Marianne Fay

Climate change exacerbates the challenges of growth and development. Climate finance can provide the resources developing countries need to mitigate and adapt.

Viewpoint:

Technology, Not Talks, Will Save the Planet

Bjørn Lomborg

Rather than trying to agree on elusive and ineffective carbon reduction targets, we should invest more heavily in new technology to fight climate change.

iMFdirect Blog:

Climate ChangeSome Simple (and Quite Convenient) Truths

Carlo Cottarelli

As world leaders gather in Copenhagen, climate change is again in the headlines. The science of the issue can get pretty incomprehensible pretty quickly. And the politics are clearly very ugly. Let’s not forget, however, that much of the economics is simple. It’s an externality, stupid—so price it.

Comments on this article should be sent to imfsurvey@imf.org


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