Policymakers Face Historic Opportunity to Fight Climate Change

Sharp drop in energy prices presents opportunity for climate initiatives

Revenue generated by new climate measures should be put to wise use

International cooperation key, but countries moving at different speeds

The world is at a critical juncture in the fight against climate change, top climate experts and representatives of international organizations told a seminar at the IMF-World Bank Annual Meetings in Lima, Peru.

With a 50 percent drop in fossil fuel energy prices in a little over a year, policymakers have a window of opportunity to take measures that would discourage energy consumption and generate revenue that can be used to reduce more harmful taxes and help finance countries’ efforts to mitigate the effects of climate change.

“Fossil fuel energy is cheap, so it is just the right moment to introduce a carbon tax and just the right time to eliminate energy subsidies,” IMF Managing Director Christine Lagarde told the gathering.

The two-part seminar “A Conversation on Climate Change” and “Energy Pricing—Getting It Right” took place just as representatives from countries around the world prepare to meet in Paris in December 2015 for the United Nations Climate Summit known as COP21. The summit aims to build on progress made at the 2009 meeting in Copenhagen.

Challenge and opportunity

In opening remarks, moderator Martin Wolf of The Financial Times noted that the international community is far from achieving its target of limiting carbon emissions so that future global warming will be capped at 2 degrees Centigrade.

Despite widespread acknowledgement that action on climate change is needed, developed countries have “failed utterly” to respond to both the challenge and the opportunity of low energy prices, Wolf said.

Countries should be striving to set a carbon price equal to the cost of the “externality”—that is, equal to the damage that climate change is doing, noted Martin Parkinson of Princeton University. “This is a good time to do it because energy prices are falling,” he said. Putting a price on carbon emissions—whether through a carbon tax or an emissions trading scheme—tends to push up the price of energy and other goods and services, he explained, so doing it now while oil prices are low will make it more palatable to consumers.

Mary Polak, Minister of Environment for the Canadian province of British Columbia, discussed her government’s experience with introducing a carbon tax, noting that it had pursued carbon pricing...