Investing in climate solutions

23.04.21 18:00

Yesterday, Managing Director Kristalina Georgieva spoke at the inaugural Leaders Summit on Climate, which was opened by U.S. President Biden and Vice President Harris. "At the IMF we look at climate change as central in our work on macroeconomic and financial stability, growth and employment. It presents huge risks to the functioning of our economies and offers incredible opportunities for transformative investments and green jobs," said Georgieva.

She then focused on three areas where the right policies can make a significant difference in accelerating the transition to the new climate economy: a robust price on carbon; standardized reporting of climate related financial risks; and financial support to developing countries.

First, a robust price on carbon: it provides a critical market signal to producers and consumers in all sectors of the economy. It has proven to advance investments in renewable energy, electric mobility, energy efficient buildings, reforestation and other climate friendly activities — with positive impact on growth and jobs, while reducing carbon emissions. Carbon revenues can also help secure a just transition, compensating households for price increases and helping businesses and workers move from high to low carbon intensity activities.

Our analysis shows that without it, we will not reach our climate stabilization goals. It also shows that a mix of steadily rising carbon prices and green infrastructure investment could increase global GDP by more than 0.7 percent per year over the next 15 years—and create millions of new jobs. Carbon pricing is gaining momentum. Many businesses now use a shadow carbon price in their models. Over 60 pricing schemes have been implemented. But the average global price is currently $2 a ton, and needs to rise to $75 a ton by 2030 to curb emissions in line with the goals of the Paris Agreement.

Because of the urgency to act we propose an international carbon price floor among large emitters, such as the G20. Focus on a minimum carbon price among a small group of large emitters could facilitate an agreement, covering up to 80 percent of global emissions. Such a price floor has to be pragmatic and equitable, with differentiated pricing for countries at different levels of economic development. And it can be implemented through carbon taxes, carbon trading systems, or equivalent measures that match local policy preferences. Crucially, a price floor could avoid less efficient and contentious border carbon adjustments if some countries move ahead with robust pricing while others do not.

climate change IMF Kristalina Georgieva

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