Sustainable Transformation of Societies – A Green Consensus for Macro-Fiscal Policies?
Remarks by Mr. Tao Zhang, Deputy Managing Director
October 9, 2020
As prepared for delivery
Thank you for the opportunity to speak today.
Climate change is already having a large impact on countries’ macroeconomic
stability and prospects for growth. Central banks and finance ministries
both have a critical role to play in addressing these challenges.
Monetary and financial sector policies can support the management of
climate risk and help cushion climate impacts on output and inflation.
And good fiscal policies can help achieve a transition to a
climate-resilient and low-carbon economy. But these policies require strong
fiscal institutions for effective implementation, as well as to ensure that
spending is done wisely and efficiently.
Here, the IMF can play an important role.
To help you better understand the Fund’s growing engagement with climate
change issues, I would like to cover three aspects of our work:
First, our capacity development assistance to help finance ministries and
central banks take climate into account in their activities;
Second, our advice on getting the price of carbon right;
Third, the Climate Change Policy Assessments we have been
developing with the World Bank to help individual member countries
integrate climate considerations in their macroeconomic policymaking.
Capacity development work
The IMF’s capacity development workstream covers a wide range of critical
economic issues. Our experts share knowledge with finance ministries and
central banks through hands-on advice, training, and peer-to-peer learning.
Looking ahead, the Fund will step up its capacity development work on the
integration of environmental concerns into budget processes, including in
Public Investment Management Assessments—which is the Fund’s key tool for
assessing infrastructure governance.
This would include developing capacity with a focus on green budgeting tools, which will be essential for countries
highly vulnerable to climate risks.
The Fund will also support technical assistance on green investment, particularly with regard to public investment
and public policies to promote low-carbon technologies. Equally important
will be our work on understanding and better disclosing climate risks.
On the financial sector side, the IMF is supporting the
efforts of central banks and supervisors to address the financial stability
risks related to climate change.
Climate-related capacity development has already focused on insurance
regulation and supervision, stress testing, and debt management in some
Caribbean countries. In this region, and others, we are also studying the
impact of climate risks on central bank operations and on the use of
monetary policy tools. Moreover, we are supporting efforts to develop asset
classification standards to improve climate-risk analysis and promote more
accurate pricing of green assets.
Let me turn to carbon pricing. This is the tool economists
believe should be the centerpiece of policies to promote a clean energy
transition. Yet, as we have seen in many countries there are limits to the
acceptability of higher energy prices. So carbon pricing will need to be
reinforced with sector-by-sector polices that are less efficient, but which
avoid a large increase in energy prices.
Here, we recommend that policymakers consider “feebates”—which essentially
are sliding scales of fees on products or activities with above-average
emission rates—and rebates for products and activities with below average
emission rates. These schemes could be used to reinforce mitigation
incentives in sectors such as transportation, power generation,
agriculture, and forestry.
Investments in clean-technology infrastructure will be essential moving
forward. And incentives to promote development and deployment of critical
technologies will be needed to kickstart these investments. The clean
energy transition also needs to be inclusive, so upfront
assistance for vulnerable households, workers, regions, and firms is also
At the international level, it is essential that a small group of key large
emitters agree on a mechanism to complement the Paris process and scale up
their own mitigation efforts. Our recommended approach is a carbon price floor arrangement, aligned with global
temperature goals. The arrangement could be designed flexibly to
accommodate different approaches at the national level, so long as they
achieve equivalent emissions outcomes, and equitably, for example, with
stricter requirements for advanced countries.
Climate Change Policy Assessments
Finally, I want to mention the Climate Change Policy Assessments, which the Fund has
developed with the World Bank.
[These assessments are a collaborative diagnostic tool that develops
capacity in countries to build coherent macro-frameworks for responding to
climate change. They cover climate adaptation and mitigation policies as
well as financing and risk management strategies, replicating the
recommended structure of the National Determined Contributions under the
Since 2017, six pilots have been conducted for small states vulnerable to
climate change and natural disasters. Recipient countries found the
assessments useful in identifying policy, institutional, and financing gaps
as well as linking climate change with the broader economy.
The Fund, together with the Bank, is now considering how to take the
assessments forward. We are exploring the scope for broadening their scope
beyond small developing states to low-income countries, emerging economies,
and possibly also advanced economies.
So, to conclude, the Fund is expanding its engagement on climate change
across multiple areas, in recognition that this is a critical macroeconomic
challenge that affects all our member countries.
IMF Communications Department
Phone: +1 202 623-7100Email: MEDIA@IMF.org