The IMF has outlined an “overwhelming” case for tackling climate change that would dwarf the short-term increase in costs to the economy forecast as a result of a shift in energy to renewable sources by 2030.
The short-term costs would increase as a result of “further procrastinating” by governments globally in the effort to lower greenhouse gas emissions by the necessary 25 per cent over the next eight years to limit global warming.
The fund estimated a lowering of global growth caused by implementing climate change policies by the end of the decade, stating that a “rapid” transition towards low-carbon technologies would cost the global economy between 0.15 and 0.25 percentage points of GDP growth annually to 2030.
For China, the US and Europe, GDP growth costs are forecast to be lower, ranging from 0.05 to 0.2 percentage points annually.
It would also cause an increase of between 0.1 and 0.4 percentage points of inflation a year compared with the baseline, assuming governments had budget-neutral policies, the IMF said.
However, there was “overwhelming evidence” that “any short-term costs will be dwarfed by the long-term benefits (with respect to output, financial stability, health) of arresting climate change,” it added.
While there was “little consensus” on the near-term macroeconomic consequences of climate change policies, it said, the costs would be “manageable” if “the right measures are implemented immediately and phased in gradually over the next eight years”.
Under the terms of the 2015 Paris Agreement, 189 countries agreed to limit global warming to below 2C and preferably to about 1.5C. Temperatures have already risen at least 1.1C because of human activity in the industrial era.
Earlier this year, the UN’s Intergovernmental Panel on Climate Change report found that a 43 per cent cut to global greenhouse gas emissions by 2030, compared with 2019, would be needed to meet the goals of the Paris climate accord.
The IPCC report, compiled by 278 scientists across 195 countries, found that without immediate action the world was on track for a 3.2C rise in temperatures by the end of the century.
The IMF said reaching such goals would require a large increase in greenhouse gas emissions taxes, regulations on emissions and significant investment in low carbon technologies.
Greenhouse gas taxes should be introduced immediately and increased in “small and predictable increments”, the fund said, and combined with incentives for investment and research into carbon-neutral technology that would help shift consumption patterns to low-carbon alternatives.
Earlier this year, a report by the World Bank found that carbon pricing schemes cover around 23 per cent of total greenhouse gas emissions. But only 4 per cent of global emissions are presently covered by a carbon price that is high enough to reduce emissions by the amount needed to meet 2030 climate targets.
The IMF put forward three policy scenarios that could lower emissions by 25 per cent by 2030, all funded by income from greenhouse gas taxation. They included a mix of redistributing the income from greenhouse gas taxes among households, using it to reduce labour taxes and using it to subsidise investment in electric vehicles and clean energy generation.
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