5 Things You Need to Know About the IMF and Climate Change
IMF Blog, June 8, 2018
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- Authors: Ian Parry
- Published: June 8, 2018
Overview
- The world is getting hotter, resulting in rising sea levels, more extreme weather like hurricanes, droughts, and floods, as well as other risks such as the irreversible collapsing of ice sheets.
- The IMF helps countries move forward with their strategies as part of their commitment to the 2015 Paris Agreement on Climate Change.
Mitigate emissions
- Carbon taxes, or similar charges for the carbon content of coal, petroleum products, and natural gas, are potentially the most effective instruments to reduce carbon dioxide emissions.
- Carbon taxes are straightforward to administer (for example, building off existing fuel excises) and can raise significant revenue that could be used to cut other burdensome taxes or fund growth-enhancing investments.
- The IMF provides practical guidance on the design of fiscal policy to mitigate climate change and is developing spreadsheet tools to help countries gauge the emissions, and broader fiscal and economic impacts of carbon pricing, and the trade-offs across alternative mitigation instruments like taxes on individual fuels, emissions trading, and incentives for energy efficiency.
- Example findings:
- IMF annual economic review for China showed that a carbon tax, or just a tax on coal use, would be significantly more effective at reducing carbon and local air pollution emissions than emissions trading systems which do not cover emissions from vehicles and buildings, and would also raise substantial revenue.
- A forthcoming IMF working paper finds that a $70 price per ton on carbon dioxide emissions in 2030, which would increase gasoline prices by about 60 cents per gallon, and more than triple coal prices, would be more than sufficient to meet mitigation pledges in some advanced and emerging market economies like China, India, Indonesia, and South Africa.
- That $70 price would be nearly sufficient in some other countries like Turkey and the United States, but well short of what Australia, Canada, and some European countries need.
- Differences in the ability of the $70 price to meet mitigation pledges reflect both differences in the stringency of commitments and in the responsiveness of fuels and emissions to pricing; emissions tend to be more responsive to pricing in countries that use a lot of coal, like China, India, and South Africa.
Energy subsidy reform
- Pricing carbon should be part of a broader strategy to reflect the full range of social costs in energy pricing, including deaths from air pollution and other local environmental side effects from fuel use.
- A spreadsheet tool provides, for all member countries, estimates of the energy prices needed to reflect supply and all environmental costs, as well as the implicit subsidies from underpricing fossil fuels.
- IMF estimates:
- Efficient energy pricing would have reduced global carbon emissions in 2013 by over 20 percent.
- Efficient energy pricing would have reduced fossil fuel air pollution deaths by over 50 percent.
- Efficient energy pricing would have raised revenues of 4 percent of GDP.
- IMF case studies distill ingredients for successful reform; one especially important ingredient is compensation for low-income households, which generally requires only a small fraction of the revenues generated from reform.
- The IMF discusses energy price reforms as part of annual country reviews, technical assistance (for example, Saudi Arabia, Jordan, United Arab Emirates), and courses and workshops.
Build resilience
- IMF staff have been assessing strategies for building resilience to climate and natural disaster risks in countries such as Nicaragua, Myanmar, and Zimbabwe.
- Climate Change Policy Assessments (conducted for Belize, Seychelles and St. Lucia) take stock of countries’ mitigation and adaption plans, risk-management strategies, and financing, and point to gaps where countries need investment, policy changes, or capacity building.
- IMF analysis helps quantify economic risks in vulnerable countries; for example:
- The annual cost of natural disasters in low-income countries is estimated to be around 2 percent of GDP, or four times the impact on larger economies.
- The IMF provides finance to help countries respond to natural disasters and climate-related events (examples include trust fund established during the 2015 Ebola crisis in West Africa to provide debt relief to poor countries hit by natural disasters).
- The IMF nearly doubled the amount countries can borrow following a large natural disaster.
Greener financial sector
- IMF staff analyze how climate risks impact financial stability and help identify best practices for stress tests to a country’s financial sector that reflect climate risks.
- Financial Sector Assessment Programs, from small island states like Samoa to big economies such as the United States and France, have included stress tests to gauge the effects of natural disasters on insurance companies, banks, and other financial institutions.
International action
- IMF staff recommend countries coordinate at the multilateral level, for example by establishing a minimum price for carbon, to complement and strengthen the Paris process.
- IMF staff are involved in developing proposals for the design of carbon taxes for international transportation fuels.
- The IMF addresses many dimensions of climate change across the entire institution in collaboration with the World Bank and other international organizations, in terms of policy analysis and advice and capacity development work.
Ian Parry, June 8, 2018 — 5 Things You Need to Know About the IMF and Climate Change
Content in this bundle
- 关于国际货币基金组织与气候变化，你需要知道的五件事，作者：Ian Parry，2018年6月8日
- Imfと気候変動について知っておくべき5つのこと, イアン・パリー Imfブログ, 2018年6月8日掲載
- Subsidiestemplate
- Climate Mitigation in China: Which Policies Are Most Effective?
- Пять фактов, которые необходимо знать про МВФ и изменение климата
References
- عربي
- Español,
- Português,
- https://www.imf.org/wp-content/uploads/2018/06/BLOG-1024x600-Polar-Bear-on-Shrinking-Ice-Sven-Erik-Arndt-Universal-Images-Group-Newscom-uigphotos235623.jpguigphotos235623.jpg
- IMF helps countries
- fiscal policy
- https://www.imf.org/wp-content/uploads/2018/06/eng-june-4-g20-climate-change.png
- case studies
- Saudi Arabia
- Financial Sector Assessment Programs
- here
- The Unequal Burden of Rising Temperatures: How Can Low-Income Countries Cope?
- Adapting to Climate Change—Three Success Stories
- Climate Change Will Bring More Frequent Natural Disasters & Weigh on Economic Growth
- Chart of the Week: Electric Takeover in Transportation
