The Expert View

Simon Black, IMF Climate Economist

Simon Black is an economist at the International Monetary Fund (IMF) where he advises governments on policies to reduce greenhouse gas emissions. Before joining the IMF, he was a climate economist at the World Bank, a climate economist at the UK’s foreign ministry, and served as a UK negotiator at the UN’s climate body where he helped negotiate the Paris Agreement. He has also worked in economic diplomacy and financial sector advisory.

In 2022, Simon was the IMF Staff Association’s Outstanding Young Leader for his work on climate change. He holds a master’s degree in international political economy from the London School of Economics and a master’s degree in international development (MPA/ID) from Harvard University, where he received a full scholarship as a Frank Knox Fellow.

WE’RE SEEING THE HOTTEST TEMPERATURES ON RECORD ACROSS PARTS OF THE WORLD, AND JULY IS LIKELY TO BE THE HOTTEST MONTH IN HUMAN HISTORY. WHAT DO WE NEED TO DO TO STOP GLOBAL WARMING?

We need to shift humanity’s relationship with energy. Thought of one way, fossil fuels are ancient sunlight, captured and deposited by plants millions of years ago. By extracting fuels like coal, gas, and oil from the earth’s crust, we’re burning thousands of years’ worth of this stored energy all at once in cars, power plants, homes, and factories, and releasing billions of tonnes of heat-trapping “greenhouse” gases into our atmosphere. This warms our world, nudging our climate away from a delicate equilibrium.

To slow warming, we need to rapidly remake the global energy system. This means decarbonizing electricity production and then using that clean electricity for most of our energy needs. For example, we need to drastically increase the amount of energy we get from capturing ‘today’s sunlight’ through solar panels. At the same time, we need to rapidly adopt technologies that can use this electricity such as electric vehicles and heat pumps for residential heating and cooling.

If we can ‘green’ the production and consumption of energy, then we’ll be about two-thirds of the way there. But we also need to end deforestation, restore ecosystems, and make food production and consumption far more sustainable. It’s a big challenge, and one where governments must step up with policies to accelerate the transition to climate-safe activities, while simultaneously addressing the world’s other problems like poverty and inequity.

HOW HAVE COUNTRIES AGREED TO MITIGATE CLIMATE CHANGE AND HOW IS IT GOING?

I think many of your readers will be familiar with the Paris Agreement, the landmark treaty signed in 2015 by almost 200 countries to limit global warming to 1.5 to 2 degrees Celsius above preindustrial levels. Under this agreement, countries have committed to cut emissions of carbon dioxide (CO2) and other greenhouse gases, with developed countries pledging to move farther and faster while transferring finance and technology to developing countries.

The problem is that countries have voluntarily committed to cut emissions, but those cuts don’t add up to anywhere near what’s required to hold temperature rises to 1.5 to 2C. Negotiators knew this when the agreement was created. So, by design, the agreement requires that countries

THE IMF FOCUSES ON GLOBAL MACROECONOMIC STABILITY. WHAT IS ITS ROLE IN CLIMATE CHANGE?

Climate change is what we call a ‘macro-critical’ problem; that is, addressing it is critical to the health of the global economy. If we don’t sufficiently limit the rise in global temperatures while adapting to the warming that’s already locked in, economies around the world will suffer in myriad ways. For example, our research shows that a single drought can lower an African country’s medium-term economic growth potential by 1 percentage point.

understand and mitigate these risks, firstly by advising on policies to reduce emissions without major economic disruptions and secondly, by helping countries adapt their economies and financial systems to a changing climate. We do this through our regular economic and financial dialogue with countries (‘Article IV’ and ‘Financial Stability Assessment Program’ reports), direct technical and financial assistance, and in our global economic analysis.

ISN’T THIS A BEHAVIOURAL PROBLEM? CAN’T PEOPLE SOLVE THE CLIMATE CRISIS THROUGH INDIVIDUAL ACTION?

gradually increase their climate ambition over time. But progress is slow. Since 2015, some countries have become more ambitious but the gap to what’s needed is still too large. Current country pledges (Nationally Determined Contributions, NDCs) would cut emissions by about 11 percent by 2030. But according to the world’s climate scientists, we need to cut emissions by 25 to 50 percent. So, even if countries achieved their targets we still would have only cut emissions by about one quarter to one half of what’s needed to limit global warming.

The scientific community has long been sounding the alarm on global warming, and most worrying of all is the prospects of ‘tipping points’ in the global system. For example, if methane and other greenhouse gases currently buried in permafrost are released rapidly into the atmosphere, this could accelerate global warming rapidly. These and other risks are not well understood by economists, but the risks to economic and financial stability from such an event are stark. Just think - sudden extreme weather could trigger mass migration and social and political conflict, while an abrupt shift to the low-carbon economy could lead to falling asset prices, losses in banking systems, and volatility in financial markets.

Our role as the IMF is to help countries

Unfortunately not. Although action at home through things like recycling and composting can make a contribution, alone they won’t reach the scale that’s required. The scale of the challenges requires more than just changing our day-to-day behaviours. Shifting energy systems means reshaping the global economy. Governments must lead with policies, with support across the rest of society – from major corporations and financial institutions down to households and individuals. But the main thing we need is changes in government policies, which is what we provide advice on.

OK, BUT WHICH POLICIES DO WE NEED?

Ultimately, what’s needed is to shift the incentives faced by businesses and households. The vast majority of the trillions of dollars of investments in the technologies needed to cut emissions will come from the private sector. However, governments have a central role to play in making that happen, including through the right financial sector frameworks, as well as through tax and spending policies.

Most people agree that polluters should pay for the negative impacts of their pollution. This is what a carbon tax does. By putting a price on carbon emissions firms are incentivized to make investment decisions that are aligned with decarbonization. We advocate for a carbon price across all countries, one that ensures that emissions are cut at the rate needed to address climate change while also respecting differences in development levels and historical responsibility.

But we need to go even further than just a carbon price. To achieve ‘net-zero’ emissions sometime around 2050 we need new technologies that are still under development; technologies like ‘direct air capture’ which suck CO2 out of the atmosphere. That means subsidising research and development in low-carbon technologies. Not all countries are well placed to do this – but those who do may see economic benefits through the creation of green jobs and industries.

WHAT ARE THE MAJOR OBSTACLES TO ACHIEVING SUFFICIENT AMBITION AND ACTION?

There are many. Among the biggest is reaching international consensus. Since 2015, thanks for rapid economic development in many places, the majority of annual greenhouse gas emissions now come from developing countries. But historically, developed economies have eaten up a far larger share of the Earth’s carbon ‘budget’, and most still have much higher emissions per capita.

The Paris Agreement recognizes this difference in historical responsibility as well as current capabilities – so developed countries committed to larger emissions reductions and transferring climate finance, to the tune of $100bn every year from 2020. However, this target was missed.

So the situation we have now is that many developed countries have ambitious targets but are not transferring sufficient finance and technology to developing countries. Meanwhile, many developing countries have less ambitious climate targets, and of course face other development problems including having to adapt to a changing climate. It’s a tricky situation.

ARE YOU SCARED OR OPTIMISTIC ABOUT THE FUTURE?

It’s hard to not be concerned about the future if you work on climate change. In fact, ‘climate anxiety’ has become a common problem, especially among young people today who are increasingly putting off major decisions like having children because of their worry about our collective future on this planet. But to be honest, I’ve become a lot more optimistic about the future, for two reasons.

First, about a decade ago when I started working in climate, very few economists in governments were actively engaged. Now, I routinely engage with people in important ministries of government that both care and can potentially do something about it, given the right tools. It’s for this reason that we decided to create the IMF-World Bank Climate Policy Assessment Tool (CPAT). CPAT is a quantitative model we developed with the World Bank in order to help countries design and implement climate policies. We’ve been working to make it a reality over the last five years, and we’re now routinely training countries in how to use it.

Second, more people – especially younger generations – are engaged in climate change than ever before. Protests erupted across Europe about the slow rate of progress on addressing the climate crisis, even in the midst of a global pandemic. These efforts are not going to waste. Policy debates have shifted and climate is being discussed like never before. This is in no small part due to climate activists repeatedly sounding the alarm.

Ultimately, we need to address climate change for the future of our children and their children. But we don’t have much time. So, the people in power today - in governments, in finance, and all parts of society - need to take action for the people of tomorrow. Though it’s far from certain, I’m increasingly optimistic that they will TR