Further delaying climate policies will hurt economic growth: IMF 

The International Monetary Fund (IMF) has warned that the world must cut greenhouse gas emissions by at least a quarter before the end of this decade to achieve carbon neutrality by 2050. 

"Progress needed toward such a major shift will inevitably impose short-term economic costs, though these are dwarfed by the innumerable long-term benefits of slowing climate change," reads World Economic Outlook published by IMF Wednesday (5 October).  

IMF estimated the short-term impact of different climate mitigation policies on output and inflation. According to their model in four regions—China, the euro area, the United States, and a block representing the rest of the world —- a policy package could slow global economic growth by 0.15 percentage point to 0.25 percentage point annually from now until 2030, depending on how quickly regions can wean off fossil fuels for electricity generation. 

The more difficult the transition to clean electricity, the greater the greenhouse gas tax increase or equivalent regulations needed to incentivise change—and the larger the macroeconomic costs in terms of lost output and higher inflation.

For Europe, the United States, and China, the costs will likely be lower, ranging between 0.05 percentage point and 0.20 percentage point on average over eight years. Not surprisingly, the costs will be highest for fossil-fuel exporters and energy-intensive emerging market economies, which on balance drive the results for the rest of the world. That means countries must cooperate more on finance and technology needed to reduce costs—and share more of the required know-how—especially when it comes to low-income countries. In all cases, however, policymakers should consider potential long-term output losses from unchecked climate change, which could be orders of magnitude larger according to some estimates.

In most regions, inflation increases moderately, from 0.1 percentage point to 0.4 percentage point.To curb the costs, climate policies must be gradual.

"If climate policies are only partially credible, firms and households will not consider future tax increases when planning investment decisions."