Finance ministers grasp ‘growth story’ of climate action

Around 50 finance ministers gathered in Washington on October 19 to put into action measures to implement the six Helsinki Principles that they agreed on five months ago. They are set to issue a communique that will acknowledge that the world is in the grip of a climate emergency.

  • By Jon Hay
  • 20 Oct 2019
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The new Coalition of Finance Ministers for Climate Action met behind closed doors in Washington on Saturday for what were described as “very constructive” discussions by people there. It was the group’s third meeting at finance minister level, after it began life as the 'Bali Breakfast' at the IMF/World Bank annual meetings a year ago.

“There was a real buzz in the room,” said Lord Stern, the climate economist. Mark Carney, governor of the Bank of England, Kristalina Georgieva, managing director of the IMF, and Ángel Gurría, secretary-general of the OECD, were also present.

The group is co-chaired by Felipe Larraín Bascuñán and Mika Lintilä, finance ministers of Chile and Finland.

It was launched at the IMF/WB spring meetings in April, when about 20 members adopted the six Helsinki Principles: aligning with the Paris Agreement, taking climate change into account in all aspects of economic policy, working towards effective carbon pricing, mobilising private capital and sharing experiences.

“We had 50 finance ministers here and the major international institutions,” Stern told GlobalMarkets. “There is a very clear understanding that this is the inclusive growth story of the 21st century. It’s the job of finance ministers to be at centre stage and help make it happen.”

Several countries joined the group in the last few days before the meeting, and even that morning, including Ethiopia, Uruguay, Lithuania, the Maldives and Madagascar.

Rising living standards

The group will release a communiqué on October 24, which Axel van Trotsenburg, managing director of operations at the World Bank, will announce in Paris.

“It went very well, it was very positive,” said Amar Bhattacharya, senior fellow at the Brookings Institution. “They started with 20 finance ministers and they have 50 now. The most central thing is there is a recognition that there is a climate emergency, and the agenda for tackling it puts finance ministers fair and square in the heart of it. The meeting was all about trying to mobilise people — it’s a real change from a couple of years ago, when finance ministers were on the sidelines.”

On December 9, at the COP 25 meeting in Santiago, the Coalition will publish its plan of action.

At the 90 minute meeting, finance ministers shared experiences of policy measures. Helen Mountford, vice-president at the World Resources Institute, said ministers talked about “integrating climate into budget frameworks. Indonesia have done it.” By tagging all climate-related spending, governments could coordinate better and spot gaps.

Carbon taxes were discussed. “There is support — there needs to be a lot more,” said Stern.

If countries take strong action, Stern said: “They will see advantages in rising living standards and to some extent government revenues, to help them manage the transition. The realisation of that, and of the real prize in their hands, was crystal clear.”

An important strand of the work will be making sure finance ministries have the expertise they need to make climate-wise policies. Bodies like the IMF can help.

"The challenge is we have to take into account that there are many countries at different levels of development," said a source who had been at the meeting. "Some suffer natural disasters from climate change. That's why we have instituted direct contact to all countries through the World Bank and IMF."

Away from the meeting, Margaret Kuhlow, head of the finance practice at WWF, said: “They need to put together a set of objectives that they will push together, and in their own countries. They need to be thinking about the relationship between climate and nature as well. We need nature for both adaptation and mitigation. If we lose a million species we can’t count on the earth’s absorption and resilience when the physical impacts hit. This is going to hit them much sooner than they think and will hit the poorest hardest.”

Action plan takes shape

The Coalition is not a formal body, but more of a loose grouping in which members help each other. "The countries that join don't need to sign up to any specific targets," the source said.

But there was a formal document that formed the basis for the discussions at the meeting. This is a draft of the Santiago Action Plan, to be announced in December.

This was not formally adopted at the meeting, but the source said: "There is a general understanding that that [draft] is now the basis for the work. Generally, everybody seems to be happy with the paper. We will have a further preparatory meeting before the COP."

The document said: "Just like the Helsinki Principles, the Santiago Action Plan is an aspirational document that does not bind Members to specific actions. The specific responsibilities of finance ministers may differ from one country to another, and it is acknowledged that members will work within their respective national frameworks, competencies, and mandates."

On the important issue of carbon pricing (including taxes, cap-and-trade and regulation), advocated at its annual meetings by the IMF, the document says: "The coverage of existing carbon pricing policies – about 20% of global greenhouse gas emissions – is too low to meaningfully reduce emissions, and new tools need to be developed and used more effectively. Carbon pricing can include measures for reducing and eliminating inefficient fossil fuel subsidies. These subsidies encourage wasteful consumption, although the importance of providing those in need with essential energy services needs to be recognised."

The draft Action Plan is summarised below, under the headings of the six organising Helsinki Principles:

Transition towards low carbon and climate-resilient economies (principle 1)

• Review existing strategies in select countries and analyse transition challenges and opportunities with the help of research institutions

• Examine economic impacts and opportunities for citizens, businesses, and economies to help inform policy 

Finance ministries’ roles and capacities in climate policy (principles 1, 2 and 6)

• Share national approaches to help members develop capacities and roles in policy-making, including the Nationally Determined Contribution (NDC) process under the Paris Agreement

• Review practices, resources, and competencies representing different governance and organisational models

Carbon pricing (principle 3)

• Review the state of play in carbon pricing, identify bottlenecks to achieving the necessary levels of carbon pricing and develop policies that can be widely accepted and implemented

• Raise technical knowledge, including on measuring, reporting and verifying of emissions reductions

• Consider transition challenges and economic impacts to enable a better understanding of the benefits of carbon pricing and ensure that policies address political economy, distributional and competitiveness concerns

Climate change in macroeconomic management and public finance (principle 4)

• Develop tools to address expertise gaps in economic forecasting and fiscal planning for climate change impacts and disaster risk management

• Facilitate the adoption of climate-smart budgeting, procurement and public investment decision-making

• Support macroeconomic and fiscal assessments of adaptation, resilience and mitigation policies, including NDCs

Financial sector development that underpins mitigation and adaptation (principle 5)

• Support the preparation of national roadmaps for greening the financial system

• Identify ways to incorporate climate risks and opportunities into investment decisions, including: supporting global efforts for transparency on climate-related financial risks and impact, identifying risks to financial stability posed by climate change and considering ways to manage these risks

• Identify measures to address the issue of high cost of capital for adaptation and mitigation investments in developing countries

• Review the multilateral development banks' efforts to mobilise climate finance.

  • By Jon Hay
  • 20 Oct 2019

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