Friends of Europe: In Conversation with Kristalina Georgieva on Pursuing a Green Economic Recovery

September 16, 2020

As prepared for delivery


Let me first start by saying how impressive the standing of Europe is on the climate agenda and this is reflected well in the State of the Union speech that we heard today. 


In this crisis, Europe has done the right thing.


It has come together, and it has increased capacity to respond and care for the vulnerable. Above all, Europe is linking the recovery to the other big crisis that is upon us – the climate crisis. 


Let me start with some context, and then I will talk about two new studies from the IMF that are relevant to the conversation in Europe.


We are in a crisis that has brought immeasurable pain and suffering to people everywhere. We cannot measure the suffering, but we can measure the economic impact. 


In economic terms, we estimate the world economy is projected to face a cumulative loss of more than $12 trillion from the start of the crisis until the end of 2021. This is equivalent nearly to the combined annual output of the euro area. It is a dramatic loss.


Looking ahead, the picture is now less bleak than a few months ago when our projections were for an even deeper recession.


But decisive actions by governments and central banks put a floor under the world economy. Globally, we have seen fiscal actions of about $11.5 trillion as of end-August, and that number is still rising. In Europe, the figure is more than 3 trillion. 


Meanwhile, we found out that we can learn how to live with the pandemic through measures like social distancing and wearing masks.


But we are not out of the woods. And we will have to do more. 


So far, the fiscal measures in place have helped but we cannot stop now. And actually, I am a rare Managing Director of the IMF that is saying to countries: please continue to spend what you can, but keep the receipts.


But what should governments prioritize in their spending? This takes me to our topic of conversation today.


President von der Leyen today announced even more ambitious climate objectives for the EU – and rightly so.


I tell everybody, if you don't like the pandemic, you are not going to like climate crisis one iota.


Having lived in Brussels I can imagine how strange it must be to have temperatures around 30 degrees Celsius in mid-September.


Here in the United States, California has the worst ever forest fires – destroying lives and destroying livelihoods. 


We know that the changing climate is triggering catastrophic weather events. And we know that unless we act decisively to mitigate the causes and adapt to the changes in the climate, we are going to be in very deep trouble. 


So, why is this relevant for the IMF?


The reason is straightforward. Our mandate is stability, growth, employment and improving in living standards. We are not going to have stability unless we address the climate crisis. 


And the good news is that with the massive fiscal stimulus put in place – in the words of Lyndon Johnson – we can walk and chew gum at the same time. 


We can address the COVID the recovery that is necessary and we can address the climate crisis. 


At the Fund we take this to heart, and I give credit to Christine Lagarde who put climate front and center of our work. And I think she did it so successfully that here I am – an environmental economist by training at the helm of the IMF.


We are committed to support our members with analytical work and through the programs we finance for an accelerated transition to a future of low-carbon climate-resilient growth. 


And we are particularly keen to work with the EU because the EU is in the lead – both in terms of financing and in terms of public support – with more than 90 percent of European people recognizing that climate change is a serious problem.


Today, my colleagues at the IMF have published two complementary studies titled EU Mitigation Policies and Sectoral Policies for Climate Change Mitigation in the EU


They recommend a package of policies that would help the EU achieve its climate goals and, with the right sequencing, help its economy recover from the current recession. 


In the near term, giving priority to green investment in the recovery packages would support job-rich growth. As the economies recover, a gradual increase in carbon prices, well anchored in forward guidance, would provide much needed revenues and create a virtuous circle of adjustments in consumer behavior and new investments. 


More specifically, we have three key recommendations.


First, price carbon emissions right, following the “polluter pays” principle. Setting a clear gradually rising path for carbon prices and expanding the coverage to all emissions will create incentives for households and firms to steer consumption and new investment towards sustainable activities and green technologies. 


At a time when countries need to put in place medium term fiscal consolidation plans, raising revenues through carbon pricing is a more growth-friendly strategy compared to increasing taxes on labor.


Second, governments need to support green investments. And there are some that are particularly attractive because they're also job rich investments. At a time when people worry about jobs in contact intensive sectors, we want to see more innovation in areas like under-developed renewables, in carbon capture and storage and so on. 


Third, the EU must help support a “just transition” and protect groups that will be adversely affected by the move away from carbon-intensive industries. This support – including, retraining and job-search assistance for workers transfers for the most vulnerable households and access to finance to start business – helps different groups and the economy, and can bolster public support for climate action.


Acting within the EU will not be enough. The EU cannot stop global warming on its own. But it can bring the world together. 


A top priority should be an agreement on a carbon pricing floor among major emitting countries would be a powerful means of reducing global emissions. 


Fairness towards European businesses is also important – and in the papers we have some specific suggestions around how best this can be can achieved. 


For example, in the absence of an agreement on carbon pricing – which would be by far preferable – applying the same carbon prices on the same products irrespective of where they are produced could help avoid shifting emissions out of the EU to countries with different standards. 


Let me finish by emphasizing that the current crisis is both a risk and an opportunity.


It would be short-sighted to go back to the economy of yesterday with its problems of growing inequality. 


We should look forward and take the opportunity to build a bridge to something better: a world that is fairer and more equitable; greener and more sustainable, smarter and above all more resilient.


Thank you.

IMF Communications Department


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