The IMF Has a Blueprint for Helping the Climate Without Hurting Economic Growth
It models a package of policies it says would enable the world to get to net zero carbon emissions by mid-century.
Photographer: Sean Gallup/Getty Images
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In a year when Covid-19 has dominated the International Monetary Fund’s agenda, the organization’s quiet rethinking of climate change in its latest World Economic Outlook report didn’t make much of a splash outside the Twitter feeds of development economics wonks. While the rest of the climate and energy world was poring over a different WEO — the International Energy Agency’s World Energy Outlook — the IMF’s comprehensive assessment of what the energy transition will mean for economies was relatively overlooked.
For decades, the need to cut emissions has been dogged by questions that essentially boil down to: how much will it cost, and is it worth it? Unlike the IEA’s analysis, which excludes the impacts of climate change altogether, the IMF’s role requires it to grapple with the implications for economies of acting versus not acting on global warming. The standard models addressing these tend to have limitations — many of them ably critiqued by my fellow Bloomberg Green contributor Gernot Wagner — but the underlying assumption is often that cutting emissions means sacrificing growth.
In its new report, the IMF takes a different tack, arguing that there is no trade-off between the two. It also goes further than a lot of climate economists by factoring in the so-called “co-benefits” from cutting emissions — the often neglected side effects, such as fewer deaths from air pollution, and reduced traffic.
The IMF’s climate chapter models a package of policy measures that it says would enable the world to get to net zero carbon emissions by mid-century. In addition to a carbon price starting at a modest $6 to $10 per ton, the package includes 80% subsidies for renewable energy production, a swathe of green public investments, compensation for households, and a supportive fiscal approach — that is, being prepared to load up on debt for the next decade. The IMF points out, reasonably enough, that we seem to be in a low-for-long interest rate environment.