The cost of crises
In a jarring estimate, Kristalina Georgieva, second-ever woman Managing Director of the International Monetary Fund (IMF), outlined that the economic loss of the current crisis for 2020/2021 could amount to $12 trillion – the equivalent of the Eurozone not producing anything for an entire year. She remained optimistic, however, and stressed that Europe has taken all the right measures to fight the current crisis and to anticipate the next one: climate change.
The need to “move from taxing people and labour to taxing pollution”
The Managing Director stressed that the immense stimulus packages implemented by most governments across the world offer an opportunity to build back better and not return to the old status quo. The IMF therefore recommends taxing carbon emissions and creating incentives for individuals and firms to lower their emissions. Georgieva highlighted the need to “move from taxing people and labour to taxing pollution”. With the funds raised from such carbon pricing, governments could support more green investments and job-rich sectors in innovation and renewable energy.
8:16 – “Please spend, but keep the receipt”
11:44 – the IMF’s studies on climate mitigation
12:09 – the IMF’s recommendations
17:19 – the EU’s role at the global stage in fighting for the carbon price floor
18:29 – the need to rebuild better
“We don’t want to add fuel to the trade disputes fire”
The EU’s economy cannot suffer under its ambitious green goals for the future. Large differences in carbon prices between the EU and its trading partners could, however, lead to trade distortions and the move of carbon-heavy industries elsewhere (i.e. ‘carbon leakage’). Georgieva stressed that the IMF isn’t seeking “to add fuel to the trade dispute fire” and until the world is ready for a global carbon price floor, the EU should start charging for the carbon content of imported products the same way as for domestic products. This would also minimise carbon leakage.
28:30 – the best solution: carbon price floor across the major emitting countries
29:55 – the next best solution: an EU carbon border tax adjustment
30:46 – issues that need to be considered
32:35 – on green bonds, financial markets and own resources
“Just transition is not just a slogan”
The European Union is in a unique position to “become the winner in the competition for the economy of tomorrow” with 90% of its population actually acknowledging that the climate crisis is an urgent risk. However, regions and sectors that rely on carbon-heavy production will have to reinvent themselves. The Managing Director concluded by stating that “just transition is not just a slogan” but requires decisive policy action and a stronger political narrative.
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The European Union (EU) has been a champion of climate change mitigation and has recently embraced the goal of becoming a climate-neutral economy by 2050 in the European Green Deal. The European Commission is currently evaluating its climate mitigation policies and assessing the economic impact of cutting EU emissions by at least 50% by 2030 compared to 1990. A new study by IMF Staff discusses how to achieve these ambitious goals, calling on the EU to pursue more robust carbon pricing and targeted investment support.
- How can Europe and the rest of the world make the needed climate mitigation policies growth-friendly to support the economic recovery?
- Which strategies should policymakers adopt to secure public support for carbon prices?
- What targeted policies can help in sectors that are difficult to decarbonise?
Managing Director of the International Monetary Fund (IMF)
Director of Insights at Friends of Europe
Before her current appointment as second-ever woman to hold the post of head of the IMF, Kristalina Georgieva was the first CEO of the World Bank, during which time she also served as Interim President of the World Bank Group. Previously, she served as EU Commission Vice President for Budget and Human Resource, where she was involved in tackling the Euro Area debt crisis and the 2015 refugee crisis. She also worked as EU Commissioner for International Cooperation, Humanitarian Aid and Crisis Response, managing one of the world’s largest humanitarian aid budgets. Prior to her time at the EU, Georgieva worked for 17 years at the World Bank.
Prior to joining Friends of Europe, Dharmendra Kanani was director of policy at the European Foundation Centre (EFC). He was the England director at the Big Lottery Fund, the largest independent funder in the UK and fourth largest in the world. Dharmendra has held senior positions in the public and voluntary sector and advisor to numerous ministerial policy initiatives across the UK.
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