## Remarks by IMF Managing Director on Global Policies and Climate Change

_IMF News, July 11, 2021_

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## Bibliographic details
- Published: July 11, 2021

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### 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)](/external/np/g20/pdf/2021/062221.pdf){rel="external" type="application/pdf"}

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## References

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