Kristalina Georgieva is very keen to talk about the research one of her International Monetary Fund economists is doing. Surprisingly, this is not about any of the issues that have gripped the organisation in the past 75 years: balance of payments crises or global recessions. It is about whales and the part they play in the fight against climate change.
“Whales act like giant pumps,” says Georgieva, noting that in its lifetime each of these mammals sequesters 33 tonnes of carbon dioxide from the atmosphere, while an average tree absorbs about 20kg a year.
Comments like this from the new managing director of the IMF have seen her getting some stick since she took over as managing director from Christine Lagarde at the start of October. With the world economy slowing and another financial crash looming, some who attended the IMF’s annual meeting in October said in private that Georgieva was spending too much time on climate change and not enough on the institution’s bread and butter: maintaining financial stability and helping countries in economic trouble.
Georgieva is unrepentant. The climate crisis and financial stability are linked, she says, because if left unattended, global heating will threaten financial stability. “When people say we should be sticking to our mandate, I fully agree,” she says. “That’s exactly what we are doing.”
Asked which she sees as the bigger risk, another global crash or global heating, she replies: “Climate change is an existential threat. It is a risk that we all have to take very seriously because from the perspective of an institution that deals with economic matters, it can push back development. We have seen that repeatedly over recent years.”
She is speaking before a meeting of COP25, the UN climate change summit in Madrid this week that will monitor progress towards meeting the carbon-reduction pledges made in Paris four years ago.
Georgieva, who was number two at the World Bank before getting the top job at the IMF, says it makes sense for her organisation to play a prominent role in the fight to prevent temperatures rising to catastrophic levels, and insists the crisis is an opportunity as well as a threat.
“In a world that’s eager for higher growth, this is an opportunity to accelerate investment in low-carbon technologies and speed up the transition to a low-carbon world.”
The industrial revolution was the start of a period that led to tremendous improvement in the people’s lives, but at a cost, she went on: “The law of unintended consequences means it has created problems, but they are problems we can solve.”
Many environmentalists see a contradiction between the IMF’s pursuit of growth and its new mission to tackle climate change. Georgieva disagrees: “These things are not necessarily against each other. You can have growth and it can be clean, green, sustainable and equitable.” She says her message to the COP 25 is simple: “We all recognise the risks. Now is the time to concentrate on action.”
Georgieva says the IMF is looking at two specific areas where it thinks it has a role to play: tax and spending policy, and making the financial sector more resilient to global heating.
On the fiscal side, the fund is pushing for a carbon tax that would reflect the damage burning fossil fuels causes to the planet. This is currently levied at an average rate of $2 a tonne; the IMF thinks it should be increased to $75 a tonne by 2030.
Georgieva recognises that this might present difficulties in the current political environment, with protests against higher fuel prices in both developed and developing countries.
“A carbon tax will push up prices, and therefore you have to identify who will be vulnerable in advance – not after the tax hits. You have to give people certainty that they are not going to be negatively impacted, and that you are not going to create a poverty or inequality problem by tackling a climate problem.”
The IMF is working in three areas of financial sector reform: tougher standards so that banks and other institutions have to come clean about their exposure to climate risks; action by central banks to stress-test the financial system; and building on work by the insurance industry to put a price on climate risk.
“We need to accelerate action. We need to recognise that the impact of climate change is not just already visible, but tends to hit the world’s poorest countries and poorest people hardest.”
Countries that have actually done very little to cause the problem are the ones most affected, she says, citing the Sahel, the Horn of Africa, Yemen, the Caribbean and small states in the Pacific ocean.
“They have done virtually nothing to create the problem and yet are the most impacted. On their own they can’t slow climate change, which is why the world needs to work collectively. The reality for those already affected is the reality for the rest of us tomorrow.”
Despite already toxic levels of pollution in China, a recent study showed that the country had installed five times as much energy capacity from coal over the past 18 months as had been mothballed by the rest of the world in the same period. Georgieva says India and China – the two biggest emerging economies – know that they need to make the transition to renewable energy.
But she has a warning for the IMF’s members. “Countries need to recognise that we are running out of that most precious commodity – time.”