The economic case for climate action

8 October 2013

Chair: Zanny Minton Beddoes, economics editor, the Economist

Panel 1:

Jim Yong Kim, president, World Bank Group

Christine Lagarde, managing director, IMF

Panel 2:

Keith Akekelwa Mukata, deputy minister of finance, Zambia

Manuel Pulgar-Vidal, minister of environment, Peru

Richard Bon Moya, under secretary and CIO, department of budget and management, the Philippines

Rachel Kyte, VP sustainable development, WB

Michael Keen, deputy director of external affairs, IMF

Sunita Narain, director, Center for Science and Environment, India

Without serious action, the world is on a trajectory toward being around four degrees centigrade warmer by the end of the century, which could put at risk decades of achievement in poverty reduction. At this flagship event, the heads of the World Bank and the IMF make the economic case for tackling climate change and a panel will discuss how the two institutions are aligning their efforts to help countries put smart climate actions into practice.

Partial notes – for full webcast see http://www.imf.org/external/am/2013/seminars/climate/index.htm

Panel 1

Jim Yong Kim

• What does it take to end poverty, it takes energy, a path of renewable energy or to wreck climate
• Technology has advanced, countries can still grow robustly

Christine Lagarde

• Climate change should be very high on the priority list
• It’s not just a long term issue, it’s a short term issue too, need to be addressed and constantly be at the front of our minds
• We have way too much debt and not enough equity, but we can address environmental damage and restore fiscal situation together
• Climate change can have huge impact on the economy
• IMF’s key customers are finance ministers, so it’s a priority to address them: should focus on getting the pricing right, we can help with this (fiscal policy, tax, carbon tax, etc.) – need to price externalities. Second thing, to gradually phase out and remove subsidies to energy, in part fossil fuels

Kim

• Those are the really big issues, that’s why wonderful division of labour between IMF & WB
• Those are two of the vital issues
• WB will focus on three other things, sustainable energy for all, cities, agriculture
• These five areas is a robust response to climate change
• Things we can do right now, top of my list

Lagarde

• Getting prices right encourages investment in renewable energy, without subsidies
• Have recently published a book on subsidies, studied 19 countries, from their case stories we have tried to identify how to do it, it’s hard but you can get it right
• On carbon taxes, working on analysis that will soon be published focusing on the US
• The broader approach the better, but can be done on a national level. If you do it right you can remove the subsidies and put it where it is needed better

Kim

• On stable price on carbon, encouraging signs with China launching carbon trading scheme
• If you get China, Europe and US moving, we are close to an agreement
• WB has lots of experience, e.g. when climate smart agriculture has worked well, for example in Kenya, on micro grids
• Also working on crowding in private sector funding
• China has changed their perception due to pollution, has set goals
• Every time one of these crises happen people move

Lagarde

• There is a broader sense of importance and urgency
• Doesn’t say differences between advanced and developing countries have been resolved
• Important the two institutions raise the issue, put it on priority list, including price setting

Kim

• Natural disasters costs could go up to 1 trillion dollar a year by 2050
• If you invest this now, you can save a huge amount of money
• IMF’s role could be huge on carbon markets and subsidies
• We have a robust solution right now to deal with this issue

Lagarde

• Finance ministers, you can raise your revenues by doing the right thing and take care of the future of your grandchildren

Kim

• Please don’t assume that tackling climate change will mean that all your costs will go up, speak to us, we will help you clean your future and grow. We will be happy to bring the options to the table, helping grandchildren and make sense economically

Panel two

Pulgar-Vidal

• Question is how you connect ministry of finance and environment
• When you have information about main source of emission, in Peru it is forest but also valuable activity
• Mining most important activity, but also most emission
• Hard with prices when having suffered a lot of economic cases

Bon Moya

• Floods recently closed airport and schools in Sumatra
• The impact of climate change is real and immediate
• Our problem is that we tend to work in silos, need to harmonise and reflect in budget – have increased budget by 40%
• Also relocation informal sectors from areas where floods will come

Akekelwa Mukata

• Climate change is long term and cuts across, it’s a developmental problem
• Have set up interministerial climate change committee, residing in ministry of finance – have mainstreamed climate change mitigation and adaptation process
• We have targeted resources to sectors, agree that subsidies can end up with wrong people, so we have scrapped this on fuel and maize
• Difficult to do politically, but looking at the long term

Bon Moya

• Getting prices right is important, need to have the discussion
• Don’t have oil, consumers of oil, third most vulnerable country to climate change

Keen

• See increased interest in pricing and subsidy removal
• Focusing on subsidy side design, strengthening social safety nets, communication
• On carbon pricing, see a large potential

Narain

• Climate change is beginning to hit home
• The finance minister of India is actually the Indian monsoon, hitting where it hurts
• Need to do what is right, e.g. community based water management
• Happy to see WB and IMF making the point of climate change so strong
• When debate on fuel subsidies started, in India pushing against diesel subsidies as used by SUVs etc, on the other hand on kerosene subsidies as used by many poor in the country, and links to black carbon
• Need to understand the nuances in subsidies, e.g. hit the car subsidies the bus

Kyte

• Aspiration to move faster to ensure what we lend and invest help
• Development has to be climate smart, public funds need to be matched with private finance, looking at new platform to crowd in private finance
• Need to get the pricing right, to send the right signals
• Not just pricing, also market based mechanism, manage carbon as a currency and tradable asset

Akekelwa Mukata

• It’s a bit abstract, issues of training and capacity building, resilience start with the mind-set
• Starting point, what results are we getting from the money, lot spent on planes to get people to do research rather than people
• Need to focus on real issues on the ground
• We need people to adapt, e.g. PPCR, these are the real issues

Pulgar-Vidal

• What makes a country discuss subsidies, we have not yet had this discussion
• We are discussing energy
• What do we need at the global level to discuss this

Bon Moya

• Debate on pricing esoteric, need immediate relief
• Need to work on governance

Narain

• Need far better global discussion, leaders not talking to each other or getting to the root of the climate change problem
• Also true can’t wait for them to come to a consensus
• Can grow differently, it is possible
• Two fundamentals to understand: won’t be as easy as we sometimes we make it out to be – don’t say we did it wrong, but you can get it right –
• But Indian cities can definitely grow without car, it’s about mobility
• We can keep doing it the mainstream ways, by cleaning up cars and fuel – or we can jump ahead by the finest bus transport systems
• Same thing can happen with solar energy
• But not easy solutions, what is the financial model, how do you make it work for the poor

Kyte

• There need to be tailored approaches for each country
• When we looked at the science, we have to say adaptation is not going to be enough, we have to look at mitigation
• This is about the efficiency of the economies

Akekelwa Mukata

• Did anybody ask people if they needed solar as a subsidy or maybe they wanted to use fat from animals
• Disconnect, people are not being consulted
• It’s more prescriptive, give the technology to sort out the problems

Keen

• Need to become granular on subsidies, will be different in different countries
• Straight forward tax policy design issues
• Different countries will do it differently, e.g. safety nets, cash transfers
• WB/IMF deeply involved in making these differences
• Getting the prices right, carbon pricing focus, a lot of the prices are local damage
• Need to think carefully about co-benefits
• Need to also think about major emitters
• Don’t need to wait for others to act

Twitter questions (no questions were taken from the floor)

Q How should we view governments in Africa

Akekelwa Mukata

• Need to work together – its an African problem

Pulgar-Vidal

• Difficult to work together in Latin America, different ideologies, this is part of the problem

Bon Moya

• Working together creates synergies, this needs to be expanded on a regional basis

Q GHG emission

Kyte

• On the city level there is a methodology now for cities to measure their levels
• Can provide assistance to other cities once methodology agreed
• Credit worthy cities can get investment, WB can support

Q indigenous peoples most vulnerable, link to agriculture dependency

Pulgar-Vidal

• Agree most vulnerable, need to create land titling
• Sometimes the market moves faster than the understanding in the field, e.g. on REDD – need to make the connection
• Adaptation won’t be enough, need to change the narrative, need something different

Q increase tax on GHG

Kyte

• Need to show how countries can grow, difficult trade offs with some choices, but there are some sweet spots
• Future is not a future of sacrifices, there are countries that will succeed in low carbon world

Keen

• Need good tax policies to increase revenue

Akekelwa Mukata

• Need to be serious commitment on the international level
• Need solutions for countries in dire straits
• Need capacity building, make solutions localised

Pulgar-Vidal

• Need to have ministry of finance of climate change
• Clear policies based on the local reality, and recognising there is an international arena impacting

Bon Moya

• Pricing is function of information, need to be shared by everyone
• Countries like ours contribute very little to climate change, but are at the frontline of climate change

Narain

• Understand climate change is real and urgent, cannot avoid the question of climate change – need to understand at national and international level
• Need control of emissions from large emitters
• Can’t have business as usual and that current solutions are small in scale, need to invest in them, that growth can be green, inclusive, fair and just

Kyte

• Need to get climate change into planning, as is happening now
• WB can help, it’s not rocket science