CAPE: A Peer-to-Peer Knowledge Exchange for Finance Ministers to Combat Climate Change

Climate change is among the most complex challenges of our time. To combat the heavy social, economic, and environmental costs of climate change requires not only strong environmental policies but also appropriate fiscal measures. Increasingly, finance ministers are taking a more vital role in this fight. From instituting carbon taxes to strengthening social and economic resilience, finance ministers have access to a wide range of policy instruments with which to manage the effects of climate change. Beyond taxation, they can also promote complementary reforms in related areas, including utility prices, credit and insurance systems, and financing mechanisms for climate-smart infrastructure.

Finance ministers are also pivotal to achieving the nationally determined contributions (NDC) established under the 2015 Paris Agreement. They can integrate cost-effective climate policies into national development strategies and budget processes, eliminate fossil-fuel subsidies, reflect the cost of externalities in energy prices, address equity and competitiveness in mitigation policies and put in place adequate fiscal buffers and financial contingency plans to ensure fiscal sustainability.

Recognizing both the challenges posed by climate change and the unique capacity of the world’s finance ministers to address them, the World Bank and the Morocco COP22 Presidency have created the Climate Action Peer Exchange (CAPE), a capacity-building forum for peer-to-peer knowledge sharing and advisory support. The CAPE initiative brings together finance ministers, senior technical staff, and other relevant stakeholders to design climate-smart macroeconomic policies, discuss fiscal-policy measures for mitigating the impact of climate change, and develop financing strategies for implementing the NDCs. 

On April 19, CAPE held its first Partnership Meeting at the World Bank headquarters in Washington, DC. The meeting included representatives from the governments of Morocco, Colombia, Nigeria, Nepal, Pakistan, the Philippines, Côte d’Ivoire, Fiji, Samoa, India, the Dominican Republic, Kenya, Senegal, Croatia, Bangladesh, Turkey, Sri Lanka, Germany, and France. Keynote speakers Lord Nicholas Stern of the London School of Economics and Professor Joseph Stiglitz of Columbia University conveyed the urgency of decisive action, as climate change is proceeding far faster than most estimates had anticipated. They noted that the world economy is projected to double over the next 30 years, while carbon emissions must be reduced drastically from their current level to prevent temperatures from rising. They also stressed the need for taxing carbon and investing in climate-resilient infrastructure to promote robust economic growth. 

“The long run story is crystal clear. Any attempt at high carbon growth will self-destruct,” said Lord Stern of the London School of Economics. “If we make a mess of the next 20 years, you can forget about holding to two degrees. The responsibility for all of us in the next 20 years is very deep and heavy, but it's also exciting and a real opportunity.”

“One of the world’s scarcest resources is environment, and yet we don’t assign a price for the emissions of carbon,” said Professor Stiglitz of Columbia University. “A carbon tax reflects one of the basic principles of taxation -- better to tax bad things than good things.”

The initial meeting provided an opportunity for finance ministers to share early success stories and describe their countries’ aspirations for climate policy. Moroccan Finance Minister Mohamed Boussaid highlighted his country’s leadership in eliminating fossil-fuel subsidies and supported the growth of renewable energy, which is expected to supply 50 percent of the country’s total energy needs by 2030. Colombian Finance Minister Mauricio Cárdenas Santamaría described how Colombia is implementing the NDCs, including its recent introduction of a carbon tax on fossil fuels. He expressed his personal commitment to the CAPE initiative and announced that Colombia will host a training workshop for CAPE members in Bogota.

“The launch of CAPE is a crucial step towards increasing our capacities by sharing our expertise and experience,” Minister Cardenas said. “And I am convinced that CAPE will ultimately help us to successfully implement our climate agreements.” 

Representatives from small islands states, such as Samoa and Fiji, and from several African countries emphasized the importance of climate change adaptation and financing for climate policies. Nepal, Nigeria, and other countries stressed the need for technical assistance to design appropriate fiscal policies and build the institutional capacity necessary to implement the NDCs while other stakeholders, including representatives from Germany and France, expressed their support for the CAPE initiative.

A Steering Committee will oversee the CAPE, supported by a secretariat located at the World Bank. The World Bank is currently developing an online platform for CAPE members to access knowledge resources and interact in real time. Experts from a variety of organizations, including the IMF, UNFCCC, the OECD Global Commission on Economy and Climate, and the Brookings Institution, will provide technical expertise to ensure the overall quality and relevance of the work program. The government of Germany and the World Bank Group’s South-South Experience Exchange Facility are providing financial support. Upcoming learning events on member-determined subjects will include videoconferences, study tours, and symposia. At the initial meeting, Minister Cárdenas offered to host a workshop on integrating carbon taxation into comprehensive fiscal-reform agenda, and similar opportunities for peer-to-peer knowledge sharing are expected to follow.  

Fostering such knowledge sharing opportunities is at the heart of the CAPE initiative. Over the near term, the initiative is expected to increase awareness among members regarding the macroeconomic and fiscal costs and benefits of environmental taxation, improve their capacity to assess the fiscal and distributional impacts of proposed mitigation and adaptation measures, and enhance the design of draft legislation introducing fiscal instruments to reduce emissions and achieve the NDCs.