World Bank, IMF Leaders Make Economic Case for Climate Action

In their first joint public appearance to discuss climate change, World Bank Group President Jim Yong Kim and IMF Managing Director Christine Lagarde said Tuesday their institutions will offer the financial support and technical knowledge needed to put emerging economies on a green growth path.

“Don’t assume that tackling climate costs will make all your costs go up and that there are no good options,” Kim said at a panel discussion that marked the opening of the World Bank Group’s week of Annual Meetings in Washington. “The innovations that are happening in other parts of the world are not always apparent to ministers of finance. We would be very happy to play the role of bringing those options to the table and letting them see that they can create a better world for their grandchildren, but that it makes economic sense as well.”

IMF: Fuel subsidies and “right pricing” go a long way

Lagarde pointed to a just-released study by the IMF showing that national subsidies for gasoline and other fossil fuel subsidies now top $485 billion annually. By removing such subsidies, financially pressed countries would generate a significant new revenue stream needed for services such as health and education, while at the same time addressing climate change, the report found.

The IMF can also help country finance ministers get the pricing right as they look to carbon taxes and other fiscal instruments to reduce greenhouse gas emissions, Lagarde said.

Thinking locally was an idea that resonated with panelists from India, Philippines, Peru and Zambia—all of whom stressed that no one size fits all when it comes to tackling climate change. Countries need to tailor climate solutions to their own circumstances and some are already doing so, spurred on by increasingly violent weather episodes that threaten lives and prospects for economic growth.

Countries Are Taking Action

Zambia has made funding for climate adaptation and mitigation programs part of the country’s budget process, and committed 25 percent of the budget toward climate-change activities, reported Keith Akekelwa Mukata, the African nation’s deputy minister of finance. It also removed fuel subsidies that only benefitted people in cities who didn’t need them, he said. 

Zambia did the math. The country’s economy lost more than $10.8 billion to climate-related drought and floods in recent decades and expects to lose another $4 billion over the next decade and add 300,000 people to the ranks of the poor unless it takes these steps, he said.

“We’d better realign ourselves now by assigning our resources to long-term programs that will create wealth and employment for our people,” Mukata said.

The Philippines has increased spending for climate programs 40 percent since 2008, also by integrating climate programs with the national budget process. Recent priorities included the relocation of people from flood-prone areas said Richard Bon Moya, undersecretary for the country’s Department of Budget and Management.

Sunita Narain, director general of the Centre for Science and the Environment in New Delhi, called for a new approach to climate change that moves away from global, wholesale solutions that may not fit conditions on the ground. She cautioned that subsidies should be dealt with care to avoid, for example, hurting India’s poor who depend on kerosene for cooking and public transportation to get around. “Hit the car, but subsidize the bus,” she said. "Hit the car, but subsidize the bus," she said. "Don’t take subsidies away from poor people."

Rich Nations Have Job to Do

Rachel Kyte, the World Bank’s vice president of sustainable development, agreed that each country needs its own approach. But whereas local adaptation programs were the focus of World Bank lending in recent years, the institution has been shifting over the past 18 months to also look closely at mitigation of greenhouse gas emissions, Kyte said. 

“Adaptation is simply not going to be enough,” she said. “If 40 percent of the maize crop in Sub-Saharan Africa will disappear that’s not our grandchildren’s problem, it’s our problem. So we have to be working, at the IMF and the Bank, to bring a global message to global leaders about the responsibility of mitigation.”

Returning to the pricing question that ran through the lively discussion, Kyte said “Without getting the prices right, everything we do is a work around. A price on carbon would send a signal of where long-term investments should be taken.”