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Wednesday, 12 October 2022

What the IMF said about the global green transition

Procrastination is making the green transition costlier, says IMF: Uncertainty and concern about the green transition’s real economic cost and long-term benefits has led to policy procrastination, which, in turn, is making the green transition more expensive, according to the IMF World Economic Outlook report for October 2022 (pdf) published yesterday. The IMF’s conclusion is that the longer this continues, the more difficult and costly the transition will be. This would also lead to higher macroeconomic costs in the form of slower growth and higher inflation.

What needs to happen? A lot. To reduce emissions by 25% by 2030, we need to see a combination of higher taxes on greenhouse gas emissions; stricter emission regulations; and more investment both in low-carbon technologies and the decarbonization high-emitting sectors, such as electricity generation, the IMF said, without putting a price tag on the cost. Egypt’s UN High Level Champion Mahmoud Moheildin told us last month that the true financing gap is in the tns of USD each year.

All of this has to happen now, the report says. Credible climate policies will spur incentives for investment and R&D in the sector, while also shifting consumption patterns to greener alternatives. This needs to be coupled with monetary policy credibility to keep inflation low.

The economic cost of the green transition: The good news is that climate policies generally have a “limited impact” on output and inflation, which makes them less of a hassle for central banks. That said, the green transition could slow down global economic growth by 0.15-0.25 percentage points annually, adding up to a 0.9-2% slowdown by 2030. “To avoid amplifying these costs, it is important that both climate and monetary policies be credible,” the report notes. “Stop-and-go policies and further procrastinating on the grounds that ‘now is not the time’ will only exacerbate the toll.”

If action is taken now, the transition will be manageable: If countries do not further delay their transition efforts, the energy transition will remain manageable — though not without some cost.

It’s also important to de-escalate global political tensions: The Russia-Ukraine war and the tense relationship between China and the US are obstructing global climate cooperation. “If different international standards arose, carbon border adjustment taxes could help prevent excess leakage and accelerate the convergence of tax and regulations to the highest global standard,” the report reads. Other potential areas of cooperation include coordination on greenhouse gas taxation, data sharing, improvement of reporting standards, and increased access to climate finance in developing economies, it concludes.


COUNTDOWN TO COP- The World Bank wants to launch a climate fund named Scale during COP27, president David Malpass announced Monday. The Scaling Climate Action by Lowering Emissions (Scale) fund will mobilize funding from the “global community” to provide grants to developing countries for green projects. Governments can also use the funding to cover interest payments on loans for green projects. No details were revealed about the size of the fund.

What will Scale fund? The results-based funding will target agriculture, forestry, and ocean-related projects, sustainable infrastructure funding in energy and transport, and fiscal and financial solutions that mobilize resources for climate action, Reuters reports, citing a World Bank paper it has seen.

Jordan signed a USD 125 mn loan agreement with the World Bank to develop the climate resilience of its agriculture sector, according to a World Bank statement yesterday. The program will provide financing to 30k farming households to adopt climate-smart and water-efficient agricultural practices between 2022 and 2027.

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