Not Yet on Track: Climate Threat Demands More Ambitious Global Action
IMF Blog, November 1, 2021
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- Authors: Kristalina Georgieva
- Published: November 1, 2021
Overview
- New IMF Staff Climate Note shows unchanged global policies will leave 2030 carbon emissions far higher than needed to “keep 1.5 alive.”
- Cuts needed by 2030:
- 55 percent below baseline levels to meet the 1.5 degrees Celsius goal.
- 30 percent below baseline levels to meet the 2 degrees Celsius objective.
- Climate change poses a grave threat to macroeconomic and financial stability and threatens ecosystems, lives, and livelihoods.
The global mitigation ambition gap
- Commitments and coverage:
- 135 countries representing more than three-quarters of global greenhouse gas emissions have committed to net zero by mid-century.
- Near-term pledge shortfall:
- Even if current commitments for 2030 were met, this would only amount to between one- and two-thirds of the reductions needed for temperature goals.
- Pledged 2030 cuts by country group:
- Advanced economies: 43 percent cut below 2030 levels.
- Higher-income emerging market economies: 12 percent cut.
- Lower-income emerging market economies: 6 percent cut.
- Illustrative distributional scenarios for reaching the 2 degrees target (all figures are percent reductions below 2030 baseline levels):
- Scenario A: Advanced 45, High-income emerging markets 30, Low-income emerging markets 20.
- Scenario B: Advanced 55, High-income emerging markets 25, Low-income emerging markets 15.
- Scenario C: Advanced 65, High-income emerging markets 20, Low-income emerging markets 10.
- Illustrative distributions to stay on track for 1.5 degrees (percent reductions below 2030 baseline levels):
- Scenario D: Advanced 70, High-income emerging markets 55, Low-income emerging markets 35.
- Scenario E: Advanced 80, High-income emerging markets 50, Low-income emerging markets 30.
- Abatement costs:
- To put global emissions within range of a 2 degrees target would cost 0.2 to 1.2 percent of GDP, with the biggest burden on richer countries.
- Co-benefits and finance needs:
- Domestic environmental benefits include reductions in deaths from local air pollution.
- Advanced economies must fulfill their commitment to provide $100 billion per year in finance to low-income countries from 2020 onward; the most recent figures show that we remain short of that target.
- To scale up private financing, certainty over public mitigation objectives and price signals are critical, alongside better-quality and standardized information to reduce perceived investment risks.
The global mitigation policy gap
- Need for policies even with ambitious pledges:
- Carbon pricing should play a central role, especially for large emitters, by providing a price signal to redirect private investment to low carbon technologies and energy efficiency.
- Required carbon price:
- A global carbon price exceeding $75 per ton would be needed by 2030 to keep warming below 2 degrees.
- International coordination:
- Coordination is critical to overcome competitiveness concerns and policy uncertainty that hinder unilateral action.
- IMF staff proposal: an international carbon price floor among a small group of large emitters with differentiated pricing by development level, financial and technological assistance for low-income participants, and allowance for national implementation through non-pricing measures that achieve equivalent outcomes.
- A price floor arrangement would be collaborative and help avoid contentious border carbon adjustments if some countries move ahead with robust pricing while others do not.
Domestic policies and distributional design
- Evidence on macroeconomic impacts:
- Recent empirical studies suggest carbon pricing reforms have not reduced GDP or employment and could support long-run growth objectives.
- Revenue potential and uses:
- Revenues from carbon pricing are typically around 1 percent of GDP or more.
- Possible uses include reducing labor taxes, increasing public investments, strengthening social safety nets, raising personal income tax thresholds, or funding public investments in health or education.
- Just transition and communications:
- Policymakers should ensure a just transition with robust assistance for vulnerable households, workers, and regions.
- Reforms should be introduced progressively and well-communicated so firms and households can adjust.
- Broader mitigation measures:
- Policies should cover broader emissions sources, such as methane, and enhance forest carbon storage.
- Green public investment is essential to accelerate adoption of clean technology infrastructure (e.g., smart grids and charging stations for electric vehicles).
- Private and public investments in clean energy have especially powerful growth effects; low-carbon industries tend to be more labor-intensive than fossil fuels, which can help boost employment.
Urgency and risks of inaction
- Without an urgent narrowing of ambition, policy, and financing gaps:
- A dangerous cliff-edge for emissions reductions beyond 2030 will be set up.
- Transition costs could greatly increase, potentially putting temperature goals permanently beyond reach.
- Imperative:
- An orderly, cooperative, and timely transition can and must happen now.
Kristalina Georgieva, November 1, 2021 — IMF blog post