Dubai, UNITED ARAB EMIRATES — The head of the International Monetary Fund on Sunday underlined the case for carbon pricing at the COP28 climate summit, saying that the oil and gas industry recognizes “the writing on the wall.”
A long-time proponent of carbon pricing, IMF Managing Director Kristalina Georgieva said this approach creates an incentive for polluters to rapidly decarbonize.
Carbon pricing ascertains the cost that a company needs to pay for its planet-warming emissions and is widely regarded as the most cost-effective and flexible way to cut such pollution.
The IMF recently raised its average price forecast to $85 a ton by the end of the decade, up from a previous forecast of $75. Underlining the scale of the challenge, Georgieva said the current average price is around $20 per ton.
“For those that have adopted a carbon price, how do we get big emitters to accept that we need to accelerate decarbonization?” Georgieva told CNBC’s Dan Murphy at the COP28 conference.
“Well, two things. One, without a carbon price, it won’t happen fast enough. So, we have to move to that incentive,” she said.
“Two, Mother Nature is helping us because countries rich and poor are already experiencing the devastating force of climate change.”
Her comments come as policymakers and business leaders convene in Dubai for the U.N.’s two-week long climate summit, which is scheduled to end on Dec. 12.
The conference is a pivotal opportunity to accelerate climate action, at a time when the world is on track to record its hottest year on record and as extreme weather events take their toll across the globe.
For the IMF chief, COP28 marks an important opportunity for countries to reassess policies that incentivize the use of fossil fuels. She stressed that government subsidies for coal, oil and gas hit $1.3 trillion last year.
“Now we have to pull this gradually and substitute with the other part of the incentive, which is pricing. I want to tell everybody who is willing to listen that a carbon price has [been] proven to work,” Georgieva said, adding that existing schemes — such as the EU’s Emissions Trading System — have registered a rapid reduction of emissions.
“Two, it generates revenues. The same European Union got 175 billion euros ($191 billion) collected from [a] carbon price,” she said.
“Three, it can be fair. It is fair first, because the more you pollute, the more you pay, and the less you pollute, the less you pay. But also, many countries [can] take some of this money and give it back, especially to the vulnerable people.”
Asked about the role of the oil and gas industry at COP28 and how to get Big Oil on side with carbon pricing, Georgieva said, “One of the good news that comes from research is that we are going to see the peak of oil and gas in this decade. Consumption is then going to gradually going down.”
“One of the great news from COP is a commitment to triple renewables in energy within the next years. Where the power of COP has come is by mobilizing the voices of people and that is already happening. I cannot think of any industry that is willing to be the enemy of the people,” she continued.
“I think that oil and gas is seeing the writing on the wall. We see many of the oil-producing countries diversifying quite rapidly and we also see an investment coming from money generated from oil into renewables [at] scale.”
