Countries must build greener and more climate-resistant economies, IMF chief says

In low-income countries, climate change is already a key driver of rising poverty, accelerating the spread of disease and worsening food insecurity

The IMF says countries must build greener and more climate-resistant economies post pandemic. The European Union wants to drastically reduce gas emission from transport by 2050 and promote electric cars. APShow less

Countries must take action on climate change now to avert future disasters, accelerate the push for greener economies and boost the economic recovery from the Covid-19 pandemic, the International Monetary Fund's chief said.

A policy mix of carbon taxes and green investment stimulus could increase the level of global output in the next 15 years by about 0.7 per cent and create around 12 million new jobs through 2027, Kristalina Georgieva, IMF managing director, said in a speech on Thursday on green finance and climate policy in Washington, DC.

"If we are to achieve a more sustainable and inclusive recovery, we must turn this crisis into opportunity by building greener and more climate-resilient economies," she said. "To achieve the goal of reducing climate risks and averting future calamities, action during this decade will be critical."

The Covid-19 pandemic has forced governments around the world to consider ways of re-building more sustainable economies and use the crisis as an opportunity to better tackle climate change challenges. The IMF chief emphasised the need for governments to take swift action on climate change now to avoid future disasters.

For example, in low-income countries, climate change is already a key driver of rising poverty, accelerating spread of disease, and worsening food insecurity, Ms Georgieva said. The Asia-Pacific region is already experiencing faster-rising temperatures and more weather-related natural disasters than anywhere else – with coastal areas and small island countries affected the most, she said.

In her speech, the IMF chief outlined key economic policy tools for climate mitigation.

IMF research showed how economic policy tools can pave a road toward net zero emissions by 2050, in a way that supports economic growth, employment and income equality.

The first of these tools is carbon pricing. There is "a growing consensus" that carbon pricing is the most efficient and cost-effective approach to curbing emissions, though there is no one-size-fits-all for countries’ policies, Ms Georgieva said.

"By raising energy prices overall, carbon pricing creates incentives for households and firms to shift towards greener options, promoting energy efficiency," she said. "It also boosts green investments and spurs innovation by levelling the playing field between renewables and fossil fuels."

The IMF is advocating for carbon price floors in the world’s largest emitters to ensure more substantial climate change mitigation.

Carbon taxes can generate substantial revenues for governments, coal taxes can be used to curb CO2 emissions, and “feebate” schemes that reward efficient practices and discourage high-carbon activities can also contribute to lowering carbon emissions in some sectors, the IMF said.

Tighter regulations of emissions and energy efficiency will be needed, along with better green technology policies, according to the Washington-based lender.

A second tool is pouring trillions of dollars in green investment.

"There is room to foster more private-sector green financing by efficiently steering capital from 'brown' to green investment, for example, through price signals and regulatory incentives," she said.

To spur private sector investment, countries should set up environmental information disclosures, green finance standard systems and other support policies, she said.

Investors need more ESG data to make informed decisions. In a survey of 425 investors with about $25 trillion in assets under management, 53 per cent cited the poor quality or availability of ESG data and analytics as the biggest barrier to deeper and broader implementation of sustainable investing, Ms Georgieva said.

Risk management also needs to be improved to assess climate-related risks and safeguard financial stability as companies and their banks face higher risks from extreme weather events and from the transition to a low-carbon economy, she said.

Poorer nations will need more international support to boost green financing as climate resilience can be a "question of life and death" for them and comes with a much higher price tag, Ms Georgieva added.

"Vulnerable countries will need more domestic revenue mobilisation—but also more external concessional financing, and more help to deal with debt," she said. "These challenges have become even more pressing during the pandemic."

The third IMF recommendation is to foster stronger international co-operation with the aim of limiting global warming to well below two degrees Celsius.

This means reaching an agreement on possibly differentiated carbon price floors and providing the climate finance and technology transfers that developing economies need to enhance their own climate efforts, she said.

Another priority is to improve the quality of climate disclosure and to harmonise global green finance standards everywhere and to share best practices across borders, she added.

"One thing is clear: only by working together can we foster a green recovery and a resilient post-pandemic world," Ms Georgieva said.