Securing a Green Recovery: The Economic Benefits from Tackling Climate Change
IMF News, April 15, 2021
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- Authors: Kristalina Georgieva
- Published: April 15, 2021
Introduction and Outlook
- Context: speech by Kristalina Georgieva, IMF Managing Director, Washington, DC, April 15, 2021.
- Pandemic and policy response:
- Last year: "the worst pandemic in a century and the deepest recession since the Second World War."
- Fiscal and monetary support: "about $16 trillion in fiscal action and a massive liquidity injection by central banks, including the People’s Bank of China (PBC)."
- Without these measures "the global contraction last year would have been three times worse."
- IMF growth forecasts highlighted:
- "6 percent for this year and 4.4 percentin 2022."
- Asia-Pacific region growth projection: "7.6 percent this year."
- China’s economy expected to grow at "8.4 percent" this year.
- China projected to "contribute on average more than one-quarter to global GDP growth through 2026."
- Distributional concerns:
- "Multi-speed recovery" across countries and within countries.
- Hardest hit groups: "Young people, women, the lower-skilled, and small businesses in contact-intensive sectors."
Securing a Green Recovery — Overview
- Imperative: climate change is an "existential threat" and "action during this decade will be critical."
- Policy opportunity: "taking action on climate change now will do more than avoid disasters in the future: by accelerating the historic transformation to greener economies, we also can provide a major boost to the recovery."
- Research illustration:
- Policy mix of carbon taxes and green investment stimulus could:
- "increase the level of global GDP in the next 15 years by about 0.7 percent"
- "create around 12 million new jobs through 2027"
- Long-term aim: "net zero emissions by 2050."
Carbon Pricing
- Rationale:
- Carbon pricing described as "the most efficient and cost-effective approach to curbing emissions."
- Mechanisms: "By raising energy prices overall, carbon pricing creates incentives for households and firms to shift towards greener options... boosts green investments, and spurs innovation."
- Asia-Pacific specifics:
- Asia accounts for "almost half of the world’s carbon emissions."
- IMF research: "a moderate and progressive carbon price—starting from a low base but rising steadily—could help countries in the region deliver on their commitments under the Paris Climate Agreement over the next 10 years."
- Revenue and redistribution:
- Carbon taxes "can generate substantial revenues" to support households and scale up public investment in "health, education, and retraining and re-skilling of displaced workers."
- Instruments and examples:
- China’s existing coal tax "could eventually be scaled up to curb CO2 emissions."
- China introducing "a national carbon emissions trading system for the power sector" with current design limits "on emissions relative to a firm’s energy output."
- Possible evolution of the system: (i) shift focus to a cap on total emissions, (ii) gradually adopt more ambitious targets, (iii) ensure compliance, (iv) extend it beyond the power sector, and (v) generate revenue from allocations, "which today are free."
- Other tools: "feebate" schemes, tighter regulations of emissions and energy efficiency, and better green technology policies.
- Structural growth alignment:
- China's reforms toward "high-quality, sustainable, and balanced growth"—shifting "away from investment-heavy to consumption-led growth, and supporting the expansion of services and high-tech sectors—as envisaged in the just-approved 14th Five-Year-Plan"—will reduce energy demand and carbon intensity.
- International coordination:
- IMF advocacy for "carbon price floors in the world’s largest emitters."
Green Financing
- Scale of investment:
- "The sheer size of the task ahead calls for trillions of dollars in green investment."
- Private-sector mobilization:
- Need to "efficiently steering capital from 'brown' to green investment, for example, through price signals and regulatory incentives."
- Domestic actions: establish "environmental information disclosures, green finance standard systems, and other support policies to mobilize more private sector investment."
- Data and investor concerns:
- Survey of "425 investors with ~$25 trillion in assets under management" found "53 percent cited the poor quality or availability of ESG data and analytics as the biggest barrier to deeper and broader implementation of sustainable investing."
- Financial stability and risk management:
- "Climate change is in itself a threat to financial stability."
- Banks and financial institutions face higher risks from "extreme weather events and from the transition to a low-carbon economy."
- Need to "improve" risk management to assess climate-related risks and safeguard financial stability.
- Support for vulnerable countries:
- Global average public investment increase to finance climate adaptation: "about 3 percent of GDP per year."
- Example: Tonga will need "14 percent of GDP per year over the next decade."
- Vulnerable countries need more "domestic revenue mobilization," "external concessional financing," and "more help to deal with debt."
- China’s role:
- Participation in "the recently extended G20 Debt Service Suspension Initiative and in the Common Framework for orderly debt restructuring," and support for the IMF’s "Catastrophe Containment and Relief Trust."
Stronger International Cooperation
- Collective objective: "limit global warming to well below two degrees Celsius."
- Priority cooperative actions:
- Reach agreement on "possibly differentiated carbon price floors."
- Step up "climate finance and technology transfers" for developing economies.
- Improve "the quality of climate disclosure and to harmonize global green finance standards—everywhere—and we need to share best practices across borders."
- Institutional engagement:
- PBC "spearheading these efforts in China."
- IMF working with the Network of Central Banks and Supervisors for Greening the Financial System, the Financial Stability Board, and other standard-setting bodies.
- A new IMF dashboard "helps in providing data for macroeconomic and financial policy analysis."
- Policy calendar:
- Upcoming international events: "COP26 summit in November" and "China will host the Biodiversity COP15 in May."
- Closing message: "only by working together, can we foster a green recovery and a resilient post-pandemic world."
As prepared for delivery by Kristalina Georgieva, April 15, 2021.