In 1785, Robert Burns reflected on how mankind came to dominate our planet: “I am truly sorry that the domination of man has broken the social union of nature” he wrote. The words of the Scottish poet still ring true two centuries later.
Human-caused climate change threatens our planet’s ecosystem and the lives and livelihoods of millions of people. From the IMF’s perspective, climate change poses a serious threat to macroeconomic and financial stability.
Today, the window of opportunity to contain global warming to 1.5°C to 2°C is rapidly closing.
As world leaders gather in Glasgow for COP26, a new IMF staff note on the climate shows that unchanged global policies will leave carbon emissions in 2030 well above what is needed to “maintain 1.5 in life”.
Reductions of 55% below baseline levels in 2030 would be urgently needed to meet this target, and 30% to meet the 2°C target.
To achieve these reductions, policymakers at COP26 need to close two critical gaps: ambition and in Politics.
The global mitigation ambition gap
A total of 135 countries representing more than three-quarters of global greenhouse gas emissions have pledged to reach net zero by mid-century. But we lack short-term promises. Even if current commitments for 2030 were met, this would only represent between one and two-thirds of the reductions needed to meet temperature targets.
Advanced economies should cut their emissions faster for reasons of fairness and historical responsibility. They have collectively committed to reducing their emissions by 43% below 2030 levels.
At the same time, high-income emerging market economies together committed to a 12% reduction, and low-income emerging market economies to 6%.
However, the climate note shows that regardless of how the cuts are split between groups of countries, everyone needs to do more.
For example, being within the range of the 2°C target could be achieved with emission reductions from advanced economies, high-income emerging markets and low-income emerging markets of 45, 30 and 20%, respectively. A different balance of efforts with reductions of 55, 25 and 15% would achieve the same objective, as would a weighting of 65, 20 and 10%.
To stay on track for 1.5°C, much more ambitious reductions are needed for the same groups of countries. For example, 70%, 55% and 35%, or 80%, 50% and 30% below 2030 baselines.
The good news is that cleanup costs are manageable. Bringing global emissions into the range of a 2°C target would cost between 0.2% and 1.2% of GDP, with the heaviest burden falling on the wealthiest countries.
And in many countries, the cost of moving away from fossil fuels can be offset by domestic environmental benefits, including reduced deaths from local air pollution.
Increased external financing will be essential to support stronger mitigation ambition for emerging markets and developing economies. Advanced economies must honor their commitment to provide $100 billion a year in financing to low-income countries starting in 2020. The most recent figures show that we remain below this target.
Furthermore, to increase private financing, certainty about public mitigation goals will be essential, especially price signals to level the playing field for clean technologies. Better and standardized information will also be essential, so that investors can help address perceived risks, including in low-income countries.
The Global Mitigation Policy Vacuum
Even with sufficiently ambitious promises, we still need policies to enforce emission reductions.
Carbon pricing, charges on the carbon content of fuels or their emissions, should play a central role, especially for large emitters. In one fell swoop, it provides a price signal to redirect private investment into low-carbon technologies and energy efficiency.
But the gap between what is required and what is in place is very large. A global carbon price above $75 per tonne would be needed by 2030 to keep warming below 2°C.
At the international level, coordination will be key to overcoming political economy constraints and increasing carbon pricing. Think about concerns about competitiveness and uncertainty around policy actions that prevent countries from acting alone.
Addressing these issues is at the heart of an IMF staff proposal for an international carbon price floor for a small group of large emitters.
Such a floor would be fair, with differentiated pricing for countries at different levels of economic development, as well as financial and technological assistance for low-income participants. And the floor price arrangement would be pragmatic, allowing national implementation through non-tariff measures that achieve equivalent results.
It would be collaborative, help avoid contentious border carbon adjustments if some countries adopt robust pricing while others do not.
At the national level, carbon pricing reforms could kick-start emissions reductions. Above all, this does not necessarily have to be at the expense of the economy. Recent empirical studies suggest that carbon pricing reforms have not reduced GDP or employment. Indeed, such reforms could support long-term growth objectives.
Revenues from carbon pricing, typically around 1% of GDP or more, can be used to reduce taxes on labor or increase public investment, thereby helping to stimulate the economy.
These are just a few examples of how mitigation strategies can, and must, bring wider benefits to all levels of society. Policy makers must ensure a just transition with strong assistance for vulnerable households, workers and regions.
For example, carbon pricing reforms can enhance equity and favor the poor. If the revenues are used to strengthen social safety nets and raise personal income tax thresholds, the policy has net benefits for poorer groups and neutral impacts on the middle class. Alternatively, the revenues could be used for public investments in health or education.
Another key ingredient of any mitigation strategy is green public investment. We need to accelerate the adoption of clean technology infrastructure such as smart grids and electric vehicle charging stations.
Working together, not only do private and public investments in clean energy have particularly powerful effects on growth, but low-carbon industries also tend to be more labor-intensive than fuels. fossil fuels, which can help boost employment.
Finally, any reforms must also be phased in and well communicated, so that businesses and households can adapt. They should also cover broader emission sources, such as methane, and improve forest carbon storage.
The urgency to act
Without an urgent narrowing of ambition, policy and financing gaps, a dangerous precipice for emissions reductions beyond 2030 will be set in motion, dramatically increasing transition costs and potentially putting temperature targets out of whack. permanently worn.
An orderly, cooperative and timely transition can and should occur. Now. In the words of Robert Burns again: “It is the day, and it is the hour.”