The Adaptive Age
IMF Blog, December 2, 2019
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- Authors: Kristalina Georgieva
- Published: December 2, 2019
Key message and framing
- Author: Kristalina Georgieva
- Publication date: December 2, 2019
- Central claim: No institution or individual can stand on the sidelines in the fight against climate change; we are entering an age of adaptation and must be smart about it.
- Intergenerational framing and scenarios highlighted:
- Kristalina Georgieva references her 9-year-old granddaughter.
- By age 20: climate change may push an additional 100 million people into poverty.
- By age 40: 140 million may become climate migrants.
- By age 90: the planet may be 3–4° hotter and barely livable.
- Framing of adaptation: adaptation is not a defeat but a defense that can deliver a “triple dividend”:
- Averting future losses.
- Spurring economic gains through innovation.
- Delivering social and environmental benefits, especially to those most at risk.
Reality check: current climate risks and adaptation imperative
- Observed trends:
- More frequent and more severe weather-related events: more droughts, more floods, more heat waves, more storms.
- Economic and human impacts cited:
- Countries already vulnerable to natural disasters suffer immediate loss of life and long-lasting economic effects.
- In some countries, total economic losses exceed 200 percent of GDP—example: Hurricane Maria struck Dominica in 2017.
- IMF positioning:
- IMF considers climate change a systemic risk to the macroeconomy.
- IMF’s mission: help members build stronger economies and improve people’s lives through sound monetary, fiscal, and structural policies.
- IMF is stepping up efforts through research and policy advice.
Mitigation plus adaptation: policy tools and fiscal considerations
- Mitigation focus:
- Intensify work on carbon pricing and help governments craft road maps from brown to green economies.
- Carbon taxes recommended as powerful and efficient tools.
- Latest IMF analysis finds large emitting countries need to introduce a carbon tax that rises quickly to $75 a ton in 2030, consistent with limiting global warming to 2°C or less.
- Carbon taxes must be implemented in a careful and growth-friendly fashion; retool tax systems in fair, creative, and efficient ways—not just add a new tax.
- Example: Sweden used higher transfers and tax cuts for low- and middle-income households to offset higher energy costs after introducing a carbon tax.
- Fiscal uses of carbon tax revenues:
- Revenues estimated at 1–3 percent of GDP.
- A portion could be directed back to low-income households.
- A portion could support firms and households that choose green pathways.
- Adaptation focus:
- Need to price risk and provide incentives for investment, including in new technologies.
- Updated building codes and climate-resilient agriculture (including more research and development) are cited as concrete adaptive investments.
- IMF instruments and support:
- Emergency lending facilities provide speedy assistance to low-income countries hit by disasters.
- IMF supports resilience-building strategies and capacity building through training and technical assistance to better manage disaster risks and responses.
- Collaboration with other organizations, notably the World Bank on Climate Change Policy Assessments, to identify gaps in mitigation and adaptation plans, risk management strategies, and financing.
New frontiers: financial sector, central banks, and climate risk management
- Role of central banks and regulators:
- Central banks, as guardians of financial and price stability, are adapting regulatory frameworks and practices to address climate risks.
- Many central banks and regulators seek to improve climate risk disclosure and classification standards to help financial institutions and investors assess climate-related exposures.
- IMF works with the Network of Central Banks and Supervisors for Greening the Financial System and other standard-setting bodies.
- Climate-related financial tools and standards:
- Encourage development of climate-related “stress tests” for banks, insurers, and nonfinancial firms to assess impacts of severe adverse climate-driven shocks on solvency and financial stability.
- IMF will help push forward climate change stress testing, including through its assessments of countries’ financial sectors and economies.
- Careful calibration of stress testing is needed because shocks or policy actions may have little historical precedent.
- Mobilizing finance:
- Efforts aim to ensure more money flows into low-carbon, climate-resilient investments.
- Rapid increase of green bonds is a positive trend, but much more is required.
- Call to intensify global cooperation to exchange knowledge, formulate and implement policies, and finance the transition to a new climate economy.
Source: The Adaptive Age — Kristalina Georgieva, December 2, 2019