In support of efforts to effectively address climate crisis, the Coalition of Finance Ministers for Climate Action, highlighted the critical need to mainstream climate into economic and financial policies.
At its sixth Ministerial Meeting, the finance ministers shared perspectives on common challenges in developing and implementing climate policies from the macro-fiscal-finance angle.
The Coalition, launched in April 2019, is a group of Finance Ministries that collaborate on strategies to integrate climate into economic and financial policies.
The United Nations (UN) Secretary-General, António Guterres; World Bank Group President, David Malpass; and International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, who were also present at the meeting, called for more action and highlighted steps multilateral institutions are taking to support efforts to address climate change.
In a Joint Ministerial Statement, yesterday, the Coalition, now consisting of 65 member countries, emphasized the key role of Ministries of Finance in helping tackle climate change, especially reforms that support a just and affordable transition to low-carbon economic growth, including carbon pricing and green budgeting.
Speaking, Finance Minister of Finland and Co-Chair of the Coalition, Annika Saarikko, said: “It is essential to recognize that a systemic change caused by climate change is taking place. We, Finance Ministers, must be able to understand the economic consequences of climate change and design our economic and financial policies accordingly.”
Agreeing, Finance Minister of Indonesia and Co-Chair of the Coalition, Sri Mulyani Indrawati, said: “Mainstreaming climate considerations into fiscal policy is a crucial yet challenging exercise. Finance Ministers have an important role to play since we have instruments at our disposal to combat climate change and facilitate the green transition in the most affordable and just way.”
…institutional investors are increasingly interested in ESG compliant investments, such as green and blue bonds. This requires standardized and consistent taxonomies and capital markets frameworks that enable this.
Subsidies, carbon pricing and budgets
In his remarks at the meeting, World Bank’s Malpass, focused on three topical issues – fossil fuel subsidies, pricing carbon, and incorporating climate considerations in budgetary decisions.
Noting that fossil fuels tend to be subsidized both explicitly, and implicitly through tax exemptions, he warned that “The longer such subsidies remain in place, the more the economy adapts to their existence and the greater the political obstacles and economic disruptions caused by their removal.”
He also argued that “If the use of fossil fuels continues to be subsidized despite its impact on greenhouse gas (GHG) emissions, it encourages individuals and firms to continue to overuse such fuels.”
On appropriate carbon pricing, Malpass advocated political will to reduce GHG by changing tax structure incentives carbon taxes are the most impactful explicit carbon pricing instruments.
He continued: “In considering carbon taxes and other incentives for carbon reduction, it’s important to recognize that climate adjustment may create adverse impacts on some groups in the short and medium term, such as job losses in coal mines to economic losses for investors. Once subsidies are reduced, the evidence suggests that raising domestic revenue from environmental taxes tends to be less distortionary—and less likely to hamper growth—than labour taxes.”
He insisted that without adequate budgetary support for climate planning in national budgets, climate commitments will only be rhetorical, adding that efforts must be complementary, and overall allocation of public resources must be optimized to address development and climate goals.
Malpass noted that in scaling climate finance, institutional investors are increasingly interested in environment, social and governance (ESG) compliant investments, such as green and blue bonds. “This requires standardized and consistent taxonomies and capital markets frameworks that enable this.”
He added that “Private sector companies that have made net zero commitments will in the short-to-medium need carbon credits. The world has an opportunity to pool these resources and invest them in high impact mitigation projects, in return for high quality and transparent carbon credits.”
