Climate change is among the most complex challenges of our time. To combat the heavy social, economic, and environmental costs of climate change requires not only strong environmental policies but also appropriate fiscal measures. Increasingly, finance ministers are taking a more vital role in this fight. From instituting carbon taxes to strengthening social and economic resilience, finance ministers have access to a wide range of policy instruments with which to manage the effects of climate change. Beyond taxation, they can also promote complementary reforms in related areas, including utility prices, credit and insurance systems, and financing mechanisms for climate-smart infrastructure.
Finance ministers are also pivotal to achieving the nationally determined contributions (NDC) established under the 2015 Paris Agreement. They can integrate cost-effective climate policies into national development strategies and budget processes, eliminate fossil-fuel subsidies, reflect the cost of externalities in energy prices, address equity and competitiveness in mitigation policies and put in place adequate fiscal buffers and financial contingency plans to ensure fiscal sustainability.
Recognizing both the challenges posed by climate change and the unique capacity of the world’s finance ministers to address them, the World Bank and the Morocco COP22 Presidency have created the Climate Action Peer Exchange (CAPE), a capacity-building forum for peer-to-peer knowledge sharing and advisory support. The CAPE initiative brings together finance ministers, senior technical staff, and other relevant stakeholders to design climate-smart macroeconomic policies, discuss fiscal-policy measures for mitigating the impact of climate change, and develop financing strategies for implementing the NDCs.
On April 19, CAPE held its first Partnership Meeting at the World Bank headquarters in Washington, DC. The meeting included representatives from the governments of Morocco, Colombia, Nigeria, Nepal, Pakistan, the Philippines, Côte d’Ivoire, Fiji, Samoa, India, the Dominican Republic, Kenya, Senegal, Croatia, Bangladesh, Turkey, Sri Lanka, Germany, and France. Keynote speakers Lord Nicholas Stern of the London School of Economics and Professor Joseph Stiglitz of Columbia University conveyed the urgency of decisive action, as climate change is proceeding far faster than most estimates had anticipated. They noted that the world economy is projected to double over the next 30 years, while carbon emissions must be reduced drastically from their current level to prevent temperatures from rising. They also stressed the need for taxing carbon and investing in climate-resilient infrastructure to promote robust economic growth.