IMF: Putting the Case for a Real Price on Carbon

IMF: Putting the Case for a Real Price on Carbon

One of the most prominent women in a global leadership position is Christine Lagarde. As head of the International Monetary Fund (IMF), she is a strong advocate for “setting the right price for fossil fuels” which means taking into account their true environmental costs. Prices should pass on to end users the full cost not only of production and acquisition, but also of the damage – including air pollution and climate change – caused by intensive reliance on fossil fuels. Prior to Paris she put the case for a real price on carbon. What did we hear from G20, APEC and CHOGM? Read More

Project Syndicate (30 November 2015):

The Right Price for Preserving Our Climate

Christine Lagarde

WASHINGTON, DC – When world leaders convene in Paris this week for the United Nations Climate Change Conference, their task will be to reach a global agreement on curbing greenhouse-gas emissions. A successful outcome, demonstrating that countries can work together for the good of the planet, would send a powerful message of hope to the world – and to the people of Paris, who remain unbowed after the recent terrorist attacks.

Climate pledges will be made on the basis of Intended Nationally Determined Contributions (INDCs), or commitments to the reduction of emissions worldwide. I believe that the price of emissions should be at the center of these pledges.

Achieving a decline in greenhouse-gas emissions at the lowest possible cost requires a revolution in energy use and production. Gradual, predictable, and reliable increases in energy prices would provide strong incentives for consumers to reduce their energy bills. At the same time, the right carbon price would enable a smooth transition away from fossil fuels by encouraging investments in technological innovation.

That is why the International Monetary Fund’s staff have recommended a three-part strategy on carbon fuel: “price it right, tax it smart, and do it now.” Each component is essential.

First, setting the right price for fossil fuels means taking into account their true environmental costs. Prices should pass on to end users the full cost not only of production and acquisition, but also of the damage – including air pollution and climate change – caused by intensive reliance on fossil fuels. A fairer carbon price will drive energy savings and boost demand for cleaner fuels and “greener” investments.

Second, the necessary change in prices would be achieved by taxing energy, using tools that are both practical and efficient. The best option is to build a carbon charge into existing fuel taxes and apply similar charges to coal, natural gas, and other petroleum products.

The revenue implications would be significant. If large emitting countries were to impose carbon prices of $30 per ton of CO2, they could generate fiscal revenues amounting to about 1% of their GDP. These revenues could be used to manage the overall fiscal burden of climate action, as well as to finance cuts in taxes on labor and capital that distort economic activity and harm growth, or to reduce deficits where needed.

In short, carbon pricing is about “smart” taxes, not higher taxes. Smart taxes should be phased in gradually to allow households and firms time to adjust and for new technologies to come on stream. Gradual and tailored adjustment is particularly important for developing economies, many of which make little contribution to global emissions. Time may be necessary, in many cases, to ensure that social safety nets are in place to protect low-income households and to provide retraining programs for workers in energy-intensive industries. This approach would also allow for climate investments to be financed through private capital flows.

Third, there is no time to lose: policymakers need to act immediately. Given the slump in energy prices, there has never been a better time to undertake the transition to smart, credible, and effective carbon pricing. Nor should countries wait for others to move first. Work at the IMF has shown that a fair amount of carbon pricing is in many countries’ national interest – even ignoring adverse climate effects on other countries – because it would help resolve major domestic environmental problems. According to the World Health Organization, outdoor air pollution causes more than three million premature deaths a year. And early action is essential to avoid the need for much more drastic – and costly – efforts later.

Ahead of the Paris summit, more than 160 countries submitted emissions mitigation pledges. By implementing these commitments, countries will substantially reduce projected future global warming.

The challenge now is to deliver on these pledges. This is why we need a concerted push for carbon pricing. In Paris, a select group of leaders who are true champions of carbon pricing will issue a call for action. The Carbon Pricing Panel, led by the IMF and World Bank, will further increase the policy momentum at the national, regional, and municipal levels.

In addition to public-sector efforts, we also need the robust engagement of financial institutions and markets. Hedging instruments such as so-called catastrophe bonds can help insure against the increasing risk posed by natural disasters. Other financial instruments, such as “green” stock indices and “green” bonds, can help reallocate investment to sectors that support environmentally sustainable growth. Here, too, carbon prices that are predictable and sufficiently high will be essential to guide investment choices.

There is a lot at stake this week in the City of Light. Paris recently experienced humanity at its worst. The climate summit will be an opportunity to show it at its best.



Countries vow billions in aid for green issue

Straits Times and Agencies report (29 November 2015)

Commonwealth bloc to start green finance facility, Canada promises $2.8b funding as climate change marches begin

PARIS • Billions of dollars in environmental aid are being pledged as the first of marches worldwide began yesterday to pressure leaders heading for Paris to negotiate a historic pact to tame global warming.

In Ottawa, the Canadian government announced climate funding of 2.65 billion Canadian dollars (S$2.8 billion) over the next five years, while the 53-nation Commonwealth bloc agreed last Friday to set up a billion-dollar “Green Finance Facility” for environmental projects.

French President Francois Hollande, addressing the Commonwealth Heads of Governments Meeting (CHOGM) summit in Malta as head of the climate conference’s host nation, called for humanity to unite in the fight against global warming.

“Man is the worst enemy of man. We can see it with terrorism,” said Mr Hollande, who spoke after leading ceremonies in Paris to mourn the 130 dead victims of the Nov 13 terror attacks in the French capital.

“But we can say the same when it comes to climate. Human beings are destroying nature, damaging the environment. It is therefore for human beings to face up to their responsibilities for the good of future generations,” he added.

Looking to the UN talks opening in Paris tomorrow, he called for “a binding agreement, a universal agreement, one that is ambitious”.

But he also spoke of fears that a handful of countries – which he did not name – may stymie consensus if they felt the deal lacked guarantees.

United Nations Secretary-General Ban Ki Moon, who also attended the meeting in the Maltese capital Valletta, said he was encouraged “by such a strong commitment” from Commonwealth leaders. “This is virtually the last political milestone before we meet in Paris,” he noted.

Under heightened security two weeks after France’s worst terror attack, some 150 heads of state and government will launch tomorrow a highly anticipated UN conference tasked with inking a 195-nation climate rescue pact.

The French authorities cancelled two rallies following the terror attacks. Activists now plan to create a 2km human chain along the original march route today.

Yesterday, thousands turned out for climate change marches across the Asia-Pacific region, part of a weekend of action across the globe to demand results from the Paris summit.

Rallies in Australia, Bangladesh, Japan, New Zealand and the Philippines illustrated the broad array of concerns over the impact of climate change, from calls for renewable energy to the plight of Pacific islanders as sea levels rise.

“Protect our common home,” declared placards held aloft as thousands gathered in Melbourne and Manila. “We want to send a message to the rest of the world, especially the world leaders at the climate talks, to say our survival is not negotiable,” said Ms Denise Fontanilla, spokesman for the Asian Peoples’ Movement on Debt and Development, in the Philippine capital.

Similar marches are set for today in Seoul, Rio de Janeiro, New York and Mexico City.

Some 150 leaders including US President Barack Obama, China’s President Xi Jinping, Indian Prime Minister Narendra Modi and Russian President Vladimir Putin will attend the start of the Paris conference, which is tasked with reaching the first truly universal climate pact, binding 195 nations to new emission limits from 2020. The goal is to limit average global warming to 2 deg C over pre-Industrial Revolution levels by curbing fossil fuel emissions blamed for climate change.

If they fail to do so, scientists warn of a world that is increasingly inhospitable to human life, with superstorms, drought and rising sea levels swamping the land.

Last week, the UN’s weather body said the average global temperature for this year is set to touch the halfway mark at 1 deg C.



Commonwealth summit concludes with agreement on climate change

CHOGM report (29 November 2015):

Commonwealth Heads of Government ended their summit in Malta today with an agreement on new measures to tackle climate change and combat radicalisation.

The final communiqué also reflected commitments on implementing the 2030 Agenda for Sustainable Development; seeking solutions to global migration challenges; and empowering young people as partners and agents of change, amongst others.

The three-day meeting was attended by leaders from all 53 Commonwealth countries, including 31 heads of government. The theme was Adding Global Value.

UN Secretary General Ban Ki-moon and French President François Hollande joined heads for a special session on climate change ahead of the COP21 talks in Paris. Commonwealth leaders issued a statement on climate action in which they committed to working towards an ambitious, equitable, inclusive, balanced, rules-based and durable outcome at COP21.

At the summit, leaders also selected the Commonwealth’s sixth Secretary-General, Dominican-born Baroness Patricia Scotland. The former UK Attorney General, who is the Commonwealth’s first woman Secretary-General, will take office on 1 April 2016.

CHOGM was preceded by four forums, which included an inaugural Women’s Forum, addressed by Deputy Executive Director of UN Women, Lakshmi Puri. It concluded with a call for quotas and targets to get more women into leadership positions.

The Youth Forum highlighted the important role that young people can play in preventing violence and conflict. A new unit at the Commonwealth Secretariat will be established to counter violent extremism and advance the Commonwealth’s role in international efforts in this regard.

The Business Forum was attended by more than 1,300 delegates from 75 countries. The Forum identified a number of areas where the Commonwealth can increase trade and investment across financial services, technology, infrastructure, healthcare, tourism and sustainability. Five new initiatives were launched to facilitate this.

For the first-time ever, LGBTQI rights were discussed at the Commonwealth People’s Forum and recommendations on this subject, amongst others, were included in the final outcome document, the Malta Declaration on Governance for Resilience.



India slows progress on ambitious climate change accord

Alex Barker in Antalya and Pilita Clark for Financial Times (16 November 2015):

India has blocked G20 efforts to pave the way for an ambitious climate change accord in a sign of deep divisions just two weeks before delegates from almost 200 nations meet in Paris.

Through almost 20 hours of talks at the G20 gathering in Turkey officials struggled to bridge a political chasm even over language suggesting a common problem required a collective solution.

A senior EU official at the meeting of world leaders in Antalya said: “At certain times I was feeling that we’re not living on the same planet.”

Most significantly India and Saudi Arabia opposed the inclusion of a reference in the G20 statement to the need to discuss a “review mechanism” that the EU and many economies say must be a central feature of the accord. The accord is supposed to require all countries to volunteer pledges to cut their greenhouse gas emissions from 2020 or take other measures to tackle climate change.

The EU and others say it must also contain measures requiring assessment every five years of commitments made by signatories and upgrade them if progress is deemed insufficient.

India said it did not want the G20 to interfere in the Paris talks and blocked even a general reference to discussions on “periodic monitoring”.

If other big economies follow suit, the weakening of the final accord would raise doubts about the UN’s ability to do anything to combat climate change.

More than 160 countries have published their initial climate pledges ahead of the two-week Paris summit that starts on November 30.

However, it is clear they will not add up to enough to meet the target agreed almost five years ago at UN talks that global temperatures should not rise more than 2C from pre-industrial times.

Some countries want a lower threshold of 1.5C set in Paris. India and Saudi Arabia were initially among a group of countries in Antalya resisting the inclusion of a reference to the 2C targets in the G20 conclusions, saying they did not want to prejudge Paris. “I was a bit surprised,” said the senior EU official, adding it did not bode well for Paris.

Angela Merkel, the German chancellor, said that “after long talks overnight” the world leaders agreed to include the 2C target in the G20 statement.

“But it is clear that a whole host of talks will still be necessary to make sure that we can make progress in Paris,” she said. “This has to be a success.”

India has long opposed efforts to oblige all countries, not just wealthy ones, to share the burden of reducing the greenhouse gas emissions that have risen steadily since UN climate talks started more than 20 years ago.

New Delhi’s opposition nearly sank the 2011 UN climate talks in Durban, South Africa, that laid the groundwork for the Paris summit.

On Sunday night Laurent Fabius, the French foreign minister who is at the summit, said the “declaration was too weak” and had been rejected by the US and some EU countries.

After talks that stretched to 3am on Monday — rare for G20 meetings — the draft was amended to make mention of targets and some broader goals for Paris.

All year countries have been publishing their pledges to cut greenhouse gas emissions ahead of December’s UN meeting in Paris but are they enough to prevent damaging changes to the climate?

“We recognise that 2015 is a critical year that requires effective, strong and collective action on climate change and its effects,” the final communique said. “We reaffirm the below 2C goal.”

However a caveat was inserted stating that negotiators would have to engage “flexibly” in Paris, which some officials saw as watering down even the general G20 statement of intent made in Antalya.

China, the world’s biggest greenhouse gas emitter, agreed in a joint statement with France this month that there should be a five-year stocktaking assessment of national climate pledges.

President François Hollande of France, who is hosting the Paris talks, hailed a “major step” forward that boosted chances of success at the summit.

But the statement said the results of this stocktake would only “inform” governments about enhancing their emissions reduction plans. It did not spell out any requirement for the plans to be strengthened.



APEC Targets Climate Change Agreement, Capacity Building

Issued by the APEC Secretariat (4 December 2015)

The 21 APEC members, the world’s largest regional economic group, are firmly committed to achieving a breakthrough at the Paris Climate Conference while ramping up efforts to build economic and technical capacity across their diverse Asia-Pacific economies to reduce emissions and mitigate the escalating threat of climate change.

APEC members set the tone at the opening of the Conference of Parties, also known as COP21, by articulating their views on the elements needed to realize a breakthrough in Paris and the implementation of measures in support of its goal of avoiding more than a two degree Celsius increase in the world’s average temperature compared to pre-industrial levels.

“Our collective security depends on our ability to act,” declared Philippine President Benigno S. Aquino III, after hosting APEC Leaders in Manila who together called for a fair, balanced, ambitious, durable and dynamic agreement on climate change in Paris—following the China-United States climate change deal that was clinched alongside the APEC Economic Leaders’ Meeting in Beijing in 2014. “The real challenge begins with an accounting of capacities: How do we ask everyone to contribute, and how do we ask those with more to help out those with less.”

APEC economies account for about three billion people, half of global trade, 60 per cent of total GDP and much of the world’s growth. They also experience more than 70 per cent of all natural disasters and incurred over USD 100 billion annually in related losses over the last decade, exacerbated by the rising frequency and severity of disasters due to climate change.

To mitigate this risk, the region’s Leaders have committed APEC member economies to double their renewable energy use by 2030 compared to 2010 levels—it currently accounts for about ten per cent of their energy mix. They have furthermore committed APEC members to reduce their aggregate energy intensity by 45 per cent, facilitated by improved energy efficiency, by 2045.

Overall, APEC economies account for 55 per cent of energy production and 60 per cent of energy consumption globally. APEC also includes seven of the top ten greenhouse gas emitters who together produce around 70 per cent of the world’s total, according to the World Resources Institute.

“We are very proud that since COP20 we have contributed to laying the foundations of what will be, we are sure, the crucial Paris Agreement,” said Peru President Ollanta Humala, host of the preceding climate conference in Lima — where APEC Senior Officials will meet next week to flesh out member economies’ priorities for greater joint action during Peru’s year as APEC 2016 chair. “Of course, this must be balanced and must put in practice a real domestic and international cooperation action process to improve climate adjustment and global resilience.”

As negotiators work to reach a deal in Paris, APEC members are fast approaching their year-end deadline to reduce their tariffs to five per cent or less on 54 environmental goods like solar panels, wind turbines and air pollution control equipment, which could enhance their accessibility and offer momentum to the Environmental Goods Agreement talks under the World Trade Organization.

APEC members are also poised to step up their efforts to develop, test and deploy new technologies and approaches for bolstering their renewable energy, efficiency and emissions reduction capacity. Focus is on the promotion of next generation transport, building and grid development as well as green industries, jobs and public consumption under a multi-year APEC Energy Smart Communities Initiative. A growing network of APEC Low Carbon Model Towns is serving as a real world testing ground, with feasibility studies of carbon-reducing measures being piloted set to move forward.

At the same time, APEC members will seek to take new steps towards their goal of increasing forest cover between them by at least 20 million hectares by 2020, promote sustainable forest management, conservation and rehabilitation, and combat illegal logging and associated trade. Additional focus is on advancing initiatives to deal with the increased risk of disasters such as typhoons, flooding and drought as temperatures swing and limit their impact on communities and supply chains critical to trade, jobs and growth, including vulnerable small businesses.


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