The International Monetary Fund (IMF) underscored the crucial role of the private sector in meeting the substantial climate investment needs of emerging market and developing economies. The organization stated on Monday that these countries, which currently emit around two-thirds of global greenhouse gases, will require about $2 trillion annually by 2030 to achieve net-zero emissions by 2050. This figure represents a fivefold increase from the current $400 billion in climate investments planned over the next seven years.
The IMF anticipates limited growth in public investment, therefore, the private sector is expected to supply about 80% of the required investment. This share rises to 90% when China is excluded. To create an attractive investment environment and unlock necessary private climate finance, a broad mix of policies is needed, according to the IMF's latest Global Financial Stability Report.
In addition to financial contributions, managing the climate transition calls for a careful "fiscal balancing act", as described by the IMF in another blog published on Monday. Governments are facing a policy trilemma between achieving climate goals, maintaining fiscal sustainability, and ensuring political feasibility. The IMF called on governments to take bold, swift, and coordinated action to find an optimal mix of both revenue- and spending-based mitigation measures.
While no single measure can fully deliver on climate goals, carbon pricing is deemed necessary but not always sufficient to reduce emissions. A pragmatic and equitable proposal from the IMF suggests an international carbon price floor, differentiated across countries at different levels of economic development. Associated carbon revenues could be partly shared across countries to facilitate the green transition.
The IMF also highlighted that a just transition should include robust fiscal transfers to vulnerable households, workers, and communities. Policymakers were urged to enhance spending efficiency and build greater capacity for raising tax revenues by broadening the tax base and improving fiscal institutions.
In conclusion, the IMF emphasized that no single country or the public sector alone can solve the climate threat. The private sector is called upon to fulfill the bulk of the climate financing needs.
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