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January 20, 2023

Why IMF’s head wants to lock world’s biggest emitters in a room

Carbon pricing is vital if the huge amounts of financing needed to cut emissions and ramp up renewables is to be deployed, agreed experts in Davos, as the IMF’s Kristalina Georgieva made clear her frustration at the lack of action on climate finance.

“We are in ditch and we have to climb out of it,” Kristalina Georgieva, managing director of the IMF, told an event at the World Economic Forum’s annual meeting in Davos on Thursday morning, focused on speeding up and increasing the delivery of financing needed to cut greenhouse gas emissions.

When asked at the end of the session for one thing she would do to help the world get out of this ditch, she replied: “Bring the 80 per cent of top emitters in one room, lock the door and let them out only after they sign in blood a commitment to work together to save our planet.”

The event debated the continuing problem that while there is no shortage of money in the world, it is not making its way to where it is most needed to cut emissions.

The panel — including Georgieva (pictured), Allianz chief executive Oliver Bäte, Bill Winters, group CEO of Standard Chartered, and Patrick Khulekani Dlamini, CEO of the Development Bank of Southern Africa — agreed a carbon tax was the way forward.

“We are still resisting the idea that carbon has to be priced and that its price has to climb,” said Georgieva. Financing is not arriving in the right places to ramp up renewables and decarbonise the economy as there is “no signal to investors and customers where should they go”, she added.

Georgieva blamed two other factors for this investment gap. First, resistance to subsiding the energy transition and over-reliance on market forces is “ideological”, she said. “Speed is [the] most essential ingredient.”

Getting enough private money invested in climate action in emerging and developing markets will only happen if “public money sweetens the deal” in terms of risk, said Georgieva. “Simple taxonomies” are also vital to release more financing, she added. “We make it so complicated. It is no surprise that people say there is greenwashing.”

Withers underlined the need for the multilateral development banks as the “primary funnel of money from the global north to the global south” to step up and significantly increase climate funding from a leverage ratio of 1:1 today to 15:1.

MDBs lack co-ordination

Bäte said it was not just the leverage ratios that needed changing, but criticised a lack of co-ordination between the various MDBs and accused them of being essentially in competition with one another. “The number one priority is to force all of us to collaborate for the sake of moving financing to developing countries with the speed that is needed to protect the human race,” replied Georgieva.

She said she hoped this issue could be resolved at COP28 in the United Arab Emirates this autumn, with agreement between financial institutions to “look at the collective impact and not at individual project balance sheets, and measure collectively how much we are moving towards a green transition”.

Governments should be ready to sign off on a “clear accountability framework” at the international climate summit against which “we can check what we are doing”, said Georgieva. “We need to make it happen this time and not kick the can into the long grass.”

“We should recognise that good policies matter,” she added, also acknowledging the need for “strong institutions” in all countries. “Then we bring in the financing.”

She insisted that she did not want to sound pessimistic and picked out South Africa and Indonesia as “bright spots”. Both countries have signed “just energy transition partnerships”, with global north countries to support the decarbonisation of their energy systems.

“Our problem is that a couple of bright spots on a dark horizon are not enough,” said Georgieva.

The International Energy Agency predicts that emerging market and developing economies could need as much as $1tn a year by 2030 if they are to stay on track to achieve net zero emissions by 2050. On top of this figure, developing economies will require up to $300bn a year by 2030 to adapt agriculture, infrastructure, water supply and other parts of their economies to cope with the changes wrought by climate change, estimates the UN Environment Programme.

This cost is forecast to rocket to as much as $1.75tn a year after 2050 if emissions reductions are not brought in line with the Paris Agreement, according to a study from 2020 by researchers in Germany.

Photo credit: Michele Tanntussi/Reuters

A service from the Financial Times