I am delighted to join the Parliamentary Assembly for this immensely important and timely discussion on the COVID-19 and climate change crises.
The first crisis is acute and immediate, the second slower burning but equally critical. The two crises are clearly interlinked, because the scale and nature of the economic policy decisions being made now will crucially affect climate outcomes far into the future. So, far from putting climate on the back burner, the pandemic adds to the urgency of addressing it.
The one crisis that affects all of us right now is the COVID-19 pandemic. Policymakers across the globe are rightly focused on protecting public health, stabilizing economies, and helping those whose livelihoods are at stake. But if recovery from the crisis is to be sustainable—if our world is to become more resilient—we must do everything in our power to promote a “green recovery.”
The IMF recently put out a short note[i] with suggestions for ways in which countries can “green the recovery.” Let me highlight some key priorities.
First—develop a new, ambitious, medium-term climate plan for the UN Climate Change Conference next year. The EU is in the vanguard here by setting ambitious targets in the Green Deal.
Second—use public support wisely, for example: Green investment could be prioritized—in fact, the IMF estimates that transitioning to a low-carbon world requires $2.3 trillion in clean energy investment each year.[ii] Financial lifelines to carbon-intensive companies, could be conditional on commitments to reduce carbon emissions.
Third—put the right price on carbon. This would direct new investment toward low carbon technologies and contribute to now-enhanced revenue needs. Existing carbon taxes and emissions trading schemes are not strong enough to change behavior as needed—the average price they impose on carbon is only $2 per ton, but measures equivalent to a global carbon price of at least $75 per ton by 2030 will be needed to keep global warming under 2 degrees Celsius.
Fourth—promote green finance. Targeted guarantees can mobilize private finance for green investment. Banks receiving public support could be mandated to better disclose climate risks in their lending and investment portfolios. And we need to find better ways of pricing in climate risk—IMF analysis[iii] underscores that climate-related disasters have so far had little effect on equity markets.
Fifth—promote a just transition. That means assisting vulnerable households, workers, regions, and trade-exposed or fuel producing firms. And using carbon pricing revenues in broad tax reductions or public investments that boost growth and benefit all households.
Sixth—coordinate with others. To stabilize the climate system, we need to go well beyond the Paris Accord. One way to do this, as we proposed in our Fiscal Monitor published last October,[iv] is to complement the Paris commitments with a carbon price floor arrangement among major stakeholders. One way or the other, we strongly believe that all countries need to work together to scale up global mitigation in an equitable and effective manner.
The IMF is playing its role. Our Managing Director has put climate change high on our agenda once the immediate crisis has passed. And we are rapidly scaling up support to our member countries with policy advice, financial resources, and a global platform for joint action. Within Europe we are working on an analytic paper on Climate Policies in the EU, to help inform discussions with our member countries.
Let me end by emphasizing that the time to act, especially with lower oil prices, is now. The decisions we take now will shape economies and the global system for decades. Europe must, and is, setting a high bar that should galvanize action elsewhere.
Thank you very much.
[i] IMF Special Series Note: Fiscal Policies to Respond to COVID-19: “Greening the Recovery,” April 20, 2020.
[ii] October 2019 Fiscal Monitor. The $2.3 trillion estimate includes the current investment of $1.8 trillion plus additional investment needs of $0.5 trillion.
[iii] Forthcoming IMF publication—April 2020 Global Financial Stability Report, Chapter 5: “Physical Risk and Equity Prices.”
[iv] October 2019 Fiscal Monitor.