How the International Monetary Fund is waking up to the financial risks of the climate crisis

(Eco Business, 7 May 2019) Now is the opportunity for the IMF to more systematically promote the use of economic and fiscal policy to drive national climate action, writes World Resources Institute’s Helen Mountford.

It’s a sign of the times that even the International Monetary Fund (IMF) is exploring ways in which it can help address the climate crisis. Building on two new IMF papers released last week and Managing Director Christine Lagarde’s eight years of leadership, this mainstay of traditional economic thought is lending its voice and unique mandate to the cause of tackling climate change.

More specifically, the IMF is working to better reflect climate resilience in macro-fiscal and financial frameworks, assess the fiscal and financial impacts of climate policy choices, and mainstream climate risk into its country assessments. As Lagarde noted, “Climate change is the great existential challenge of our times.” It is high time this reality is appropriately reflected in the IMF’s work.

What’s new from the IMF?

One of the new papers is a comprehensive update of global fossil fuel subsidies and negative externalities like air pollution. The paper found that the world is wasting a whopping 6.5 per cent of global GDP—$ 5.2 trillion per year—subsidizing dirty energy.

Under-pricing of local air pollution, which the World Health Organisation estimates kills 4.2 million people each year, is the largest part of these costs. Coal remains the largest recipient of subsidies, despite being the most polluting.

For the first time, the IMF’s subsidies assessment is paired with a new paper exploring how countries can apply a range of fiscal policies to deliver their goals under the international Paris Agreement on climate change, and what the IMF can do to support them.

External link

Eco Business, 7 May 2019: How the International Monetary Fund is waking up to the financial risks of the climate crisis