## Sustainable Transformation of Societies – A Green Consensus for Macro-Fiscal Policies?

_IMF News, October 9, 2020_

## Source details

**Canonical URL:** [Sustainable Transformation of Societies – A Green Consensus for Macro-Fiscal Policies?](https://www.imf.org/en/news/articles/2020/10/09/sp100920-sustainable-transformation-of-societies)

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## Bibliographic details
- Published: October 9, 2020

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### Context and overview
- Remarks by Mr. Tao Zhang, Deputy Managing Director, prepared for delivery on October 9, 2020.
- Climate change is already having a large impact on countries’ macroeconomic stability and prospects for growth.
- Central banks and finance ministries both have a critical role to play in addressing these challenges.
- The IMF aims to cover three aspects of its work on climate change:
  - First, capacity development assistance to help finance ministries and central banks take climate into account in their activities;
  - Second, advice on getting the price of carbon right; and
  - Third, the Climate Change Policy Assessments developed with the World Bank to help individual member countries integrate climate considerations in their macroeconomic policymaking.

### Capacity development work
- The IMF’s capacity development workstream covers a wide range of critical economic issues, sharing knowledge through hands-on advice, training, and peer-to-peer learning.
- Planned steps and focus areas:
  - Step up capacity development on the integration of environmental concerns into budget processes, including in Public Investment Management Assessments—the Fund’s key tool for assessing infrastructure governance.
  - Develop capacity with a focus on green budgeting tools, essential for countries highly vulnerable to climate risks.
  - Support technical assistance on green investment, particularly regarding public investment and public policies to promote low-carbon technologies.
  - Work on understanding and better disclosing climate risks.
- Financial sector support:
  - Support central banks and supervisors addressing financial stability risks related to climate change.
  - Existing climate-related capacity development has focused on insurance regulation and supervision, stress testing, and debt management in some Caribbean countries.
  - Study the impact of climate risks on central bank operations and on the use of monetary policy tools.
  - Support efforts to develop asset classification standards to improve climate-risk analysis and promote more accurate pricing of green assets.

### Carbon pricing
- Carbon pricing is identified as the tool economists believe should be the centerpiece of policies to promote a clean energy transition.
- Political and social constraints:
  - Limits exist to the acceptability of higher energy prices; carbon pricing will need to be reinforced with sector-by-sector policies that are less efficient but avoid a large increase in energy prices.
- Policy recommendation:
  - Consider “feebates”—sliding scales of fees on products or activities with above-average emission rates and rebates for products and activities with below average emission rates—to reinforce mitigation incentives in sectors such as transportation, power generation, agriculture, and forestry.
- Investment and inclusivity:
  - Investments in clean-technology infrastructure will be essential.
  - Incentives to promote development and deployment of critical technologies will be needed to kickstart these investments.
  - The clean energy transition needs to be inclusive; upfront assistance for vulnerable households, workers, regions, and firms is needed.
- International approach:
  - Recommend a carbon price floor arrangement, aligned with global temperature goals, to complement the Paris process and scale up mitigation efforts.
  - The arrangement could be designed flexibly to accommodate different national approaches so long as they achieve equivalent emissions outcomes, and equitably, for example, with stricter requirements for advanced countries.

### Climate Change Policy Assessments
- The Climate Change Policy Assessments are collaborative diagnostic tools developed with the World Bank to build capacity in countries to create coherent macro-frameworks for responding to climate change.
- Coverage and structure:
  - Assessments cover climate adaptation and mitigation policies as well as financing and risk management strategies, replicating the recommended structure of the National Determined Contributions under the Paris Agreement.
- Pilots and findings:
  - Since 2017, six pilots have been conducted for small states vulnerable to climate change and natural disasters.
  - Recipient countries found the assessments useful in identifying policy, institutional, and financing gaps and in linking climate change with the broader economy.
- Next steps:
  - The Fund, together with the Bank, is considering how to take the assessments forward and exploring the scope for broadening their scope beyond small developing states to low-income countries, emerging economies, and possibly also advanced economies.

### Wrap-up and IMF role
- The Fund is expanding its engagement on climate change across multiple areas in recognition that this is a critical macroeconomic challenge that affects all member countries.
- Key institutional roles highlighted:
  - Provide capacity development to finance ministries and central banks.
  - Advise on carbon pricing mechanisms and complementary sectoral policies.
  - Advance Climate Change Policy Assessments with the World Bank to integrate climate into macroeconomic policymaking.

*Source: Remarks by Mr. Tao Zhang, Deputy Managing Director, October 9, 2020.*

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## References

- [Tao Zhang](https://www.imf.org/en/About/senior-officials/Bios/tao-zhang)
- [IMF-World Bank Debt Sustainability Framework for Low-Income Countries -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/imf-world-bank-debt-sustainability-framework-for-low-income-countries)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/10/09/sp100920-sustainable-transformation-of-societies_