July 11, 2021/IMF
As prepared for delivery
Minister Franco, Governor Visco, Ministers and Governors, Dear Colleagues and Friends,
I would like to thank the Italian G20 Presidency for your leadership in organizing this important event at a critical juncture.
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. Based on our historic experience, this may seem an impossible target—but it is one we ought to and can achieve, with public support, technological breakthroughs, and the right policies.
But our miserable performance so far has given ground to an interesting a joke: how can we achieve sustainability and protect our climate? The answer is there are two ways to do that. One is realistic, and the other one is fantastic. The realistic way is that extraterrestrials come from space, take over our affairs and they get it done. The fantastic way is that we people do it ourselves.
So, your job as G20 Presidency is to make the fantastic, realistic. And we are here to help you do so.
Public awareness and support are growing. Recent global polls tell us that majority of people surveyed consider climate change a global emergency, with the level of concern highest in small islands and developing states and high-income countries (at 74 and 72 percent) and well above 50 percent in middle-income and least developed countries (at 62 and 58 percent). Another poll tells us that the pandemic has heightened these concerns: 43 percent of people surveyed were more worried about climate change now than they were before, with only 7 percent saying they are less worried.
The response of science and technology during the pandemic, and success in creating effective vaccines in record time, have also set hopeful examples for the leaps that are needed in innovation, development, and commercialization of low-carbon technologies. In addition, the policy responses of governments to the COVID-19 crisis have demonstrated that many major economies are capable of unprecedented and drastic action when it is called for.
It is in this context that staff from several international organizations (AFD, IEA, IMF, OECD, UNDP, WTO) worked to set out key global policy priorities to cut emissions in line with the Paris Agreement, to be published in a report after the Conference. Applying them at a country level would require specificity of making climate mitigation compatible with continued social development and national preferences toward policy approaches.
The first priority is to make market signals work for the new climate economy, not against it. As politically challenging as this may be, the world needs to rid itself from all forms of fossil fuel subsidies. Defined broadly to include undercharging for supply and environmental and health costs, they are equivalent to more than 5 trillion dollars annually—and we will soon publish an updated research on the exact composition of these subsidies.
Key is putting a robust price on carbon as we discussed at the G20 High-Level Tax Symposium. This will provide a critical signal for redirecting private investment and innovation to clean technologies, and to incentivize energy efficiency. Our research is clear—without it we simply can not reach the goals of the Paris Agreement.
And this price signal needs to get predictably stronger—by 2030, we need an average global price of $75 per ton of CO2, way up from today’s $3 per ton and up from the 23 percent current emissions coverage.
A minimum first step on carbon pricing is a regular stocktaking of measures by the G20 countries to assess progress toward mitigation commitments.
A higher level of ambition is an International Carbon Price Floor agreement among major emitters—staff at the IMF have elaborated in a recent proposal how this could work, and we will continue to expand our policy research in this area.
With a pragmatic design, this type of arrangement would allow different minimum prices based on different development levels and different national policy approaches. And the carbon price floor does not have to be a tax. Some countries may prefer other measures that achieve the same outcome, such as emission trading or combinations of feebates/regulations at the sectoral level.
Crucially, as well as making global mitigation efforts more effective, a price floor would address concerns about competitiveness that already incentivize carbon border adjustments, which are less effective and more divisive.
But carbon pricing alone is not enough. Which brings me to the second policy priority: green investments.
Radically decarbonizing our economies will require a substantial scaling-up of investment over the next two decades. The shift to renewables, new electricity networks, energy efficiency, low carbon mobility—offer a huge investment opportunity.
And it’s a huge opportunity for growth and jobs. 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.
On average, around 30 percent of new investment is expected to come from public sources—which will be vital to mobilize the remaining 70 percent from private sources. That means giving priority to green recovery packages, green budgeting, and green finance.
International public finance can help reduce both costs and perceived risks. Governments can help provide the infrastructure to support the deployment of low-carbon technologies in response to carbon pricing. And financial sector policies—such as green taxonomies and common risks disclosures—can steer private investment toward sustainable projects.
The third global policy priority is a “just transition”—within and across countries, ensuring the shift to a low-carbon economy is fair and benefits all.
Within countries we must recognize that decarbonization would impact vulnerable households, as well as businesses and workers currently deployed in sectors with high emissions. Fair compensation measures will be required. For example, revenues from carbon pricing schemes can fund cash transfers, social safety nets, worker retraining, and relocation schemes. And place-based policies can help develop new low-carbon industries and jobs through green investments.
Across countries, help must be provided to both those faced with the double challenge of increasing energy access while reducing their carbon footprint, and those faced with costs associated with adapting to the impact of climate change coupled with limited fiscal space. They will need support from the international community.
This brings me to the role of the IMF.
At the Fund, we are working closely with partners on this important agenda. With the World Bank, we have formed a High-Level Advisory Group on Sustainable and Inclusive Development that will put forward policy analysis and proposals to address the twin crises of climate and the pandemic.
We are putting climate at the heart of our work—from country, regional, and global economic surveillance to capacity building to helping small island states with fiscal strategies that build resilience.
Most recently, our Board agreed to increase climate coverage in Article IV and Financial Sector Assessment Programs. We will now cover mitigation policies in the 20 largest emitters and other cases, adaptation in countries that are especially vulnerable to climate shocks, and transition in economies heavily dependent on fossil fuel production. Our FSAPs will examine physical risks due to climate change, and transition risks as we move to a low-carbon economy.
And earlier this year, we launched a new Climate Change Indicators Dashboard, in collaboration with partners including the OECD, the World Bank, the UN, and the European Commission.
Beyond surveillance, capacity development, and data, the next step is to consider whether and how IMF financing can help implement policy advice–including climate mitigation, adaptation, and transition policies. In the context of the forthcoming allocation of $650 billion of Special Drawing Rights, we are exploring the creation of a Resilience and Sustainability Trust.
This Trust would aim to support resilient and sustainable growth in the post-pandemic period, including resilience to climate change. It could lend at cheaper rates and longer maturities to provide fiscal space for countries to undertake green reforms and policies. And it could especially benefit low-income, poorer, and vulnerable middle-income countries. I look forward to discussing this with our membership in the period ahead.
Let me end with the words of Leonardo da Vinci, who worked in Venice as an architect and engineer.
He said: “I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.”
Climate change is a global challenge that requires urgent global action. We know what must be done. The time is now.
As we look ahead to COP26 we must be ready to move decisively—together—for the sake of our planet, prosperity and for people everywhere.