June 2012

Sound fiscal policy and smart climate policy got an unexpected boost this week when IMF managing director Christine Lagarde urged countries to put a price on carbon and end fossil fuel subsidies -- and offered IMF research and analytical support to help. Other news has been less encouraging ahead of next week’s Rio+20 Earth Summit. Climate talks show disappointing results, efforts to mobilize climate funding for developing countries under the Green Climate Fund face setbacks and carbon markets are suffering from low prices and excess allowances.

IMF Chief Sets Out on the “Road to a Sustainable Economic Future”

IMF Managing Director Christine announced that she will attend the Rio + 20 Earth Summit, the first time an IMF head attends a UN environment summit. She also urged countries to put a price on carbon emissions, end fossil fuel subsidies, and announced a bold new engagement for the IMF in sustainable development in a speech at a CGD-hosted event. David Roodman says the IMF move makes pricing carbon “the new normal” and welcomes and reviews an IMF e-book released this week, Fiscal Policy to Mitigate Climate Change: A Guide for Policymakers. I unpack Lagarde’s announcement that the IMF will join efforts to develop “green” GDP measures, and I address the concern in some developing countries a global push for a greener economy could hurt their trade competitiveness.

Image: Kaveh Sadari

Climate Negotiations

At a UNFCCC meeting in Bonn from May 14 – 25 in Bonn climate negotiations limped along, ending in “discord and disappointment” according to Fiona Harvey of The Guardian. In the first negotiating meeting since the annual climate summit in Durban, South Africa, last December focused on procedural wrangling rather than actual progress.

The Durban summit had produced a new negotiating approach known as the Durban Platform, a non-binding “agreement to reach an agreement” by 2015 on a legal instrument that would include emissions limits for all countries to take effect in 2020. But even as the International Energy Agency reported that global greenhouse gas emissions in 2011 reached the highest level ever the acrimonious first meeting to flesh out the “Durban Platform” had difficulty even agreeing on a future work program.

Climate Finance

Progress has been slow in launching the so-called Green Climate Fund (GFC). Following commitments at the Copenhagen and Cancun climate summits to mobilize $100 billion in climate finance for developing countries by 2020, the Durban climate summit agreed on steps to launch the Green Climate Fund. The first step was to be a meeting of the GCF Board on May 31. However the first GCF Board meeting had to be postponed because of a failure to agree on which countries would sit on the Board. Meanwhile a funding hiatus looms between the end of the “Fast Start” climate funding (2010 – 2012) and the 2020 commitment.

The agenda for the June 18-19 G-20 summit in Mexico includes a discussion on mobilizing the promised $100 billion. In advance of the G-20 meeting, the Brookings Institution, Oxfam America, World Wildlife Fund and ActionAid organized a meeting on The G-20’S Development and Climate Goals: Innovations in Shipping. The discussion focused on proposals to impose a tax -- essentially a carbon tax -- on shipping and aviation fuel. IMF head Lagarde also supported this idea in her speech.

The idea is to impose a global tax on shipping and aviation fuels -- as Europe has done for aviation fuels -- to encourage energy efficiency, reduce emissions, and generate a revenue stream that could in principle be channeled (e.g. through the Green Climate Fund) to help meet the $100 billion funding goal by 2020. There is a valuable precedent for collection of a global fee that does not go through national tax authorities: the International Oil Pollution Compensation Fund, which provides compensation for oil spills from tankers.

In carbon markets, in the annual State and Trends of the Carbon Market, the World Bank reports that the total value of the carbon market increased 11 percent to US$176 billion in 2011. The biggest carbon market is US$148 billion of EU Allowances (carbon credits used in the EU Emissions Trading Scheme issued by the European Union member states). But with record low carbon prices, an abundance of allowances and falling emissions in Europe as a result of economic stagnation, a debate among EU member countries is heating up over the European Commission proposal calling for deeper emissions cuts.