IMF Considers Fiscal Implications of Climate Change
The International Monetary Fund (IMF) Executive Board held a seminar on the fiscal implications of climate change, on 24 March 2008. The IMF Directors highlighted that the IMF has a distinctive and valuable contribution to make to the task of understanding and dealing with the fiscal challenges from climate change, but cautioned that the Fund's work on climate change should be budget-neutral and limited to its core competencies. With respect to the Fund's country work, the Directors noted that climate change concerns tend to reinforce established Fund advice on fiscal management, for instance in relation to energy subsidies. It was suggested that the Fund's work in this area should be mainly demand-driven, pay special attention to countries where the impact of climate change on external stability is evident and significant, and facilitate the exchange of views on country-experiences.
Directors also noted the potential role of regulation in mitigating emissions, and of private sector actions to adapt to climate change including through innovation and the development of financial instruments. They highlighted the wide range of fiscal instruments that could be used for mitigation, such as scaling back implicit or explicit energy subsidies, cap-and-trade schemes and carbon taxation. Several Directors, however, cautioned that the elimination of fuel subsidies is a delicate issue, and noted the challenges involved in the international coordination of tax rates and the need to design measures to offset the regressive impact of carbon taxation. They also highlighted the need for improved knowledge on the macro significance, fiscal risks and trade-offs caused by public spending for adaptation in those countries particularly exposed to climate risk.