Remarks by IMF Managing Director on Global Policies and Climate Change

IMF News, July 11, 2021

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Remarks by IMF Managing Director on Global Policies and Climate Change

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Bibliographic details

• Published: July 11, 2021

Urgency and scale of the challenge

• To keep global warming between 1.5 to 2 degrees Celsius, we must cut global emissions by one quarter to one half over the next decade.
• Public awareness and support:
  • Concern highest in small islands and developing states and high-income countries at 74 and 72 percent respectively.
  • Concern well above 50 percent in middle-income and least developed countries at 62 and 58 percent respectively.
  • Pandemic impact on concern: 43 percent of people surveyed were more worried about climate change now than before, while 7 percent said they are less worried.
• Scientific and technological response to COVID-19 (vaccines developed in record time) is cited as a hopeful example for rapid innovation and commercialization of low-carbon technologies.
• Many major economies have shown capacity for unprecedented and drastic policy action during the COVID-19 crisis.

Global policy priorities (overview)

• IMF and partner organizations (AFD, IEA, IMF, OECD, UNDP, WTO) set out key global policy priorities to cut emissions in line with the Paris Agreement; a report will be published after the Conference.
• Application at country level requires policies compatible with social development and national preferences.

Priority 1 — Market signals and carbon pricing

• Eliminate all forms of fossil fuel subsidies (broadly defined to include undercharging for supply and environmental and health costs); these subsidies are equivalent to more than 5 trillion dollars annually.
• Put a robust price on carbon:
  • By 2030, need an average global price of $75 per ton of CO2.
  • Current global average: $3 per ton.
  • Current emissions coverage: 23 percent.
• Minimum first step: regular stocktaking of measures by the G20 countries to assess progress toward mitigation commitments.
• Higher ambition: International Carbon Price Floor agreement among major emitters; IMF staff have elaborated a recent proposal and will continue policy research.
• Design flexibility:
  • Allow different minimum prices based on different development levels and national policy approaches.
  • Carbon price floor need not be a tax; alternatives include emission trading or combinations of feebates/regulations at the sectoral level.
• A carbon price floor could reduce competitiveness concerns and address incentives driving carbon border adjustments, which are characterized as less effective and more divisive.

Priority 2 — Green investments and financing

• Radically decarbonizing economies requires substantial scaling-up of investment over the next two decades (renewables, electricity networks, energy efficiency, low carbon mobility).
• Economic opportunity:
  • Research by IMF staff shows how deficit-financed green supply policies could raise global GDP by about 2 percent this decade and create millions of new jobs.
• Investment composition:
  • On average, around 30 percent of new investment is expected to come from public sources.
  • The remaining 70 percent would need mobilization from private sources.
• Policy implications:
  • Give priority to green recovery packages, green budgeting, and green finance.
  • International public finance can reduce costs and perceived risks and provide infrastructure to support low-carbon technology deployment in response to carbon pricing.
  • Financial sector policies—such as green taxonomies and common risk disclosures—can steer private investment toward sustainable projects.
• Footnote on the 30 percent public share: "A global average based on a historical split for energy investment, as calculated by IEA, with a larger share of the public sector in EMDEs."

Priority 3 — A just transition

• Ensure the shift to a low-carbon economy is fair and benefits all, within and across countries.
• Within countries:
  • Decarbonization impacts vulnerable households, businesses, and workers in high-emission sectors.
  • Fair compensation measures needed; revenues from carbon pricing can fund cash transfers, social safety nets, worker retraining, and relocation schemes.
  • Place-based policies can develop new low-carbon industries and jobs through green investments.
• Across countries:
  • Support required for countries with the double challenge of increasing energy access while reducing carbon footprint, and for countries facing climate adaptation costs with limited fiscal space.
  • International community support is necessary.

IMF role and operational responses

• Collaboration and institutional arrangements:
  • With the World Bank, IMF formed a High-Level Advisory Group on Sustainable and Inclusive Development to put forward policy analysis and proposals addressing climate and the pandemic.
• Mainstreaming climate in IMF work:
  • Climate is being integrated into country, regional, and global economic surveillance, capacity building, and fiscal strategies for small island states.
  • IMF Board agreed to increase climate coverage in Article IV and Financial Sector Assessment Programs (FSAPs):
  • Cover mitigation policies in the 20 largest emitters and other relevant cases.
  • Cover adaptation in countries especially vulnerable to climate shocks.
  • Cover transition in economies heavily dependent on fossil fuel production.
  • FSAPs will examine physical risks due to climate change and transition risks as economies move to low-carbon models.
• Data and tools:
  • Launched a new Climate Change Indicators Dashboard, in collaboration with partners including the OECD, the World Bank, the UN, and the European Commission.
• Financing instruments:
  • Considering whether and how IMF financing can help implement policy advice—mitigation, adaptation, and transition policies.
  • In the context of the forthcoming allocation of $650 billion of Special Drawing Rights, IMF is exploring creation of a Resilience and Sustainability Trust:
  • Aim: support resilient and sustainable growth in the post-pandemic period, including resilience to climate change.
  • Could lend at cheaper rates and longer maturities to provide fiscal space for countries to undertake green reforms and policies.
  • Could especially benefit low-income, poorer, and vulnerable middle-income countries.
  • Further discussion with IMF membership is anticipated.

Call to action and closing

• Quotation from Leonardo da Vinci: “I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.”
• As COP26 approaches, the IMF stresses readiness to move decisively—together—for the planet, prosperity, and people everywhere.

Remarks by IMF Managing Director on Global Policies and Climate Change, International Conference on Climate, Venice, July 11, 2021.

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• 062221 (PDF)

References

• https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva
• Speeches
• PRESS CENTER
• https://www.imf.org/en/news/articles/2021/07/11/EditorPage.aspx?da=core&di=0&ed=FIELD1816314964&fbd=1&fld=%7B5E30EA8C-0335-4122-B707-513176E32724%7D&hdl=H1816315152&id=%7B20A49866-DF75-4EAF-A1DD-AEB71A853664%7D&la=en&mo=&pe=0&so=%2Fsitecore%2Fsystem%2FSettings%2FHtml+Editor+Profiles%2FRich+Text+Full&vs=
• https://www.imf.org/en/home