World Bank Climate Ministerial Meeting:
IMF Managing Director’s Remarks

Washington, D.C.
April 17, 2015

As Prepared for Delivery

The issue of climate change is very close to my heart. I am therefore very happy to be here with President Kim and Secretary General Ban Ki-Moon.

2015 is a pivotal year for climate change, with 196 countries pledging action on emissions, to be ratified at the December Climate Conference in Paris.

These actions must achieve environmental objectives while supporting the economy, and be both practical and flexible.

Therefore, the key message I would like to leave with you today is: “Price it Right!”

It is a simple message, but it is aimed directly at you and your governments. In the fight against climate change, well-designed carbon taxes or tax-like instruments are essential.

To promote lower emissions by firms and households, we must use these instruments to price the emissions right.

Let me be specific:

  • First, carbon prices should be high enough to achieve ambitious environmental goals;
  • Second, carbon prices should be stable and predictable to encourage investments in low-emission technologies;
  • Third, any revenues from carbon taxes should be used to help the economy by substituting taxes on labor and capital that distort economic activity and depress growth;
  • Fourth, administration should be simple. That can be achieved by building on fuel tax systems, which are widely accepted and long established in most countries;
  • Finally, to be most effective, pricing schemes should be designed in line with national circumstances—so long as the 15 or so large-emitting countries, who together account for three-quarters of all global emissions, meet some minimal and verifiable carbon pricing standards.

This is where you, dear Ministers, come in!

Your full engagement in climate policy is crucial to:

  • Champion carbon pricing;
  • Administer carbon charges;
  • And restructure fiscal systems to raise more revenue from carbon-intensive fuels and less from other taxes.

Let me emphasize that carbon pricing is in your countries’ own best interest because of the fiscal and local environmental benefits it brings, for example, reduced deaths from local air pollution.

Consider this: if the top twenty emitters were to impose carbon pricing only to realize these domestic benefits—not aiming at climate change at all—worldwide emissions would already decline by over 10 percent!

Therefore, action to reduce emissions at the local level must not await a global agreement. Many countries have already done so, and we welcome these efforts. But there is also much room to increase emissions coverage, adjust pricing, and better exploit fiscal opportunities.

It is true that higher energy prices can harm vulnerable groups. But this should not hold up carbon pricing because there are practical ways to help the poor.

This can be done through stronger social safety nets or targeted tax cuts. Governments can also assist workers in the transition from energy-intensive to other sectors.

There is no better time for this than to act now. Low oil prices have created a window of opportunity that will close if and when markets tighten again.

We also need to fulfill our pledge to mobilize $100 billion for climate finance in developing countries from 2020 onwards. As the World Bank and IMF pointed out in a recent report to the G20, the taxation of fuels would provide an adequate source of funding for this purpose—both domestic fuel or that used in cross-border transportation.

Thank you.

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