IMF head says world must come to grips with climate change costs

While Stephen Harper was congratulating Australian Prime Minister Tony Abbott yesterday for ending a carbon tax, the head of the IMF was in Montreal urging energy powerhouses like Canada to come to grips with the economics of climate change.

International Monetary Fund managing director Christine Lagarde urged economists and central bankers from around the world not to wait for the next round of climate change talks to take action to protect the environment.

All countries need to put mechanisms in place – whether a carbon tax or a cap and trade system – to pay for the effects of pollution, she said at the conference of the International Economic Forum of the Americas in Montreal. She urged countries not to wait for a new round of talks on global warming, but to start building these costs into their economic systems now.

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Harper used his meeting with Abbott to say that Canada would not take action to limit emissions if it meant trading off economic growth or jobs.

In an interview with CBC’s The Current on Tuesday, Lagarde said there are clear costs to development of any energy source that policymakers must factor into the price.

I don’t think lip service is going to pay back very much and I think coming generations will be the first ones to come back and remind us about it.- Christine Lagarde

She said “externalities such as wastage of water, congestion on the roads, additional risks to mortality and so on, need to be included in the thinking process that applies to policies encouraging the use of one or another form of energy.”

“It cannot be about setting prices without including those externalities — whether it takes the form of a good, solid intelligent carbon tax, whether it’s a good, solid intelligent cap and trade system, or whether it is any other device that can be put in place in order to resist those externalities by including them in the price-setting,” she added.

Lagarde told reporters Monday that most economists agree that some price has to be attached to carbon and she hopes that experiments such as the carbon tax system in British Columbia and carbon exchange system in California will continue.

“I don’t think lip service is going to pay back very much and I think coming generations will be the first ones to come back and remind us about it,” she told The Current.

She agreed that there is resistance to action to combat global warming, but said it is her role as head of the IMF to promote responsible policies.

“It’s not going to stop me from raising my voice when I know that the facts are right and the analysis is correct,” she said.

Trust damaged

Lagarde applauded Canada's efforts to unleash its energy sector, supporting efforts to expand infrastructure that will boost exports to Asia and Europe.

She said she believes world economies are recovering from the long recession, but that trust in governments and institutions has been damaged by the economic pain.

“What we are saying at the IMF is that rising inequality is not conducive to sustainable growth and from that, policymakers have to draw their conclusion as to how they want to reduce those rising inequalities,” Lagarde said.

She said the IMF has been very involved in reforming bank regulations.

“The fact that the financial sector was really at the origin of the overall crisis has had something to do with it. I’m not certain that it’s a complete failure of capitalism as it is, but it is certainly a very strong incentive to capitalism as a system to reinvent itself in order to be much more inclusive and in order to make sure that growth is much more sustainable in the long term,” Lagarde said.

“What does that mean in practical terms? It certainly means the financial sector which was at the root of the problem continues to be reformed, not only in appropriate ratios, but also in its culture,” she said.