Getting Back on Track to Net Zero: Three Critical Priorities for COP27
IMF Blog, November 4, 2022
Source details
- Canonical URL
- Getting Back on Track to Net Zero: Three Critical Priorities for COP27
Other formats
Bibliographic details
- Authors: Kristalina Georgieva
- Published: November 4, 2022
Context and key message
- Climate impacts in 2022 cited: typhoons in Bangladesh, unprecedented floods in Pakistan, heatwaves in Europe, wildfires in North America, dry rivers in China, and droughts in Africa.
- If global warming continues, scientists predict more devastating disasters, long-term disruption to weather patterns, potential mass migration, and risk of catastrophic tipping points.
- Three fronts for action: steadfast policies to reach net zero by 2050, strong adaptation measures, and staunch financial support for vulnerable countries.
Net zero by 2050: findings and policy prescriptions
- Objective: limit further temperature rises to 1.5 degrees to 2 degrees.
- Emissions target: cutting emissions by 25‑50 percent by 2030 compared to pre-2019 levels.
- Current commitments: about 140 countries—accounting for 91 percent of greenhouse gas emissions—have proposed or set net-zero targets for around mid-century.
- Gap between targets and outcomes:
- New IMF analysis: current global climate targets would only deliver an 11 percent cut.
- The gap is equivalent to more than five times the current annual emissions of the European Union.
- Policy mix recommended:
- Price carbon, including cutting fossil fuel subsidies, or implement alternative measures that achieve equivalent outcomes (feebates, regulations).
- Consider an international carbon price floor agreement asking large emitters to pay a minimum price of $25-$75 per ton of carbon depending on their national income level (not necessarily structured as taxes; collaborative, pragmatic, equitable).
- Include measures to reduce methane; cutting methane emissions by half over the next decade would prevent an estimated 0.3 degree rise in the average global temperature by 2040.
- Incentivize private investments in low-carbon technologies, growth-friendly public investments in green infrastructure, and support for vulnerable households.
- Cost estimate:
- IMF projection: net cost of moving to clean technology—including savings from avoiding unnecessary investments in fossil fuels—would be around 0.5 percent of global gross domestic product in 2030.
- Note: delay would make the shift far more costly and disruptive.
Urgent need to adapt
- Rationale: some global warming is already locked in; mitigation alone is insufficient.
- Disproportionate burden:
- Larger economies must deliver the lion’s share of cuts, while smaller economies pay the biggest costs and face the biggest adaptation bills.
- In Africa, a single drought can lower a country’s medium-term economic growth potential by 1 percentage point, creating a government revenue shortfall equivalent to a tenth of the education budget.
- Adaptation needs and fiscal constraints:
- For around 50 low-income and developing economies, the IMF estimates annual adaptation costs will exceed 1 percent of GDP for the next 10 years.
- Many of these countries have exhausted fiscal space during nearly three years of crises (pandemic, rampant inflation) and urgently need international financial and technical support.
- Priority investments: resilience-building through infrastructure, social safety nets, early warning systems, and climate-smart agriculture.
Climate finance: innovate now
- Public finance:
- Advanced economies must meet or exceed the pledge of $100 billion in climate finance for developing countries.
- Mobilizing private finance and instruments:
- Public money alone is insufficient; innovate to incentivize private investors.
- Strengthen governance and integrate climate considerations into public investment and financial management to unlock new financing sources.
- Proven instruments: closed-end investment funds to pool emerging market assets for scale and risk diversification.
- Multilateral development banks and donors should encourage institutional investors by providing equity (currently a small share of commitments).
- Potential sources and data:
- Pension funds, insurance companies, and long-term investors collectively manage over $100 trillion of assets.
- Better data, standardized high-quality comparable information, harmonized climate disclosures, and aligning financing with climate-related goals are essential to facilitate decision-making and investment.
Role of the IMF
- The IMF is incorporating climate considerations across its work: economic and financial surveillance, data, capacity development, and analytical work.
- Partnerships: World Bank, the Organisation for Economic Co-operation and Development, Network for Greening the Financial System, and others.
- Financing tool:
- Resilience and Sustainability Trust: now has more than $40 billion in funding pledges, along with three staff-level agreements with Barbados, Costa Rica, and Rwanda.
- Emphasis: cooperation and scaled-up international support are vital to meet the adaptation and mitigation challenges.
Kristalina Georgieva, November 4, 2022