International Monetary Fund (IMF) Managing Director Kristalina Georgieva advocated yesterday for small island developing nations to be able to repay their debts in the form of carbon credits.
Georgieva was a part of a panel conversation with Prime Minister Philip Davis and World Bank President David Malpass for the New York Times Climate Forward event discussing “Money in Action: Closing the Climate Finance Gap”.
Pointing to the prime minister’s reference to The Bahamas as one of the world’s largest carbon sinks, Georgieva said low carbon emitting nations like The Bahamas should be able to exchange carbon assets for debt forgiveness.
“What do we do in a world where a crisis upon a crisis has lifted debt burdens on developing countries, and at the same time they are being hit by climate shocks? And I do believe that it is very important to think about finding a solution that marries these two problems,” she said.
“On one side debt, on the other side climate. We have been advocating for creating objective platforms in which both public institutions, philanthropic and private sector, can step in.”
Turning to Prime Minister Philip Davis, Georgieva said, “Let’s take your example, you suck in carbon, why not provide to your creditors not money, but carbon credits that have monetary equivalents? Is that possible? Yes it is possible. It is hard but it is possible. And the bank and fund we have been thinking, how to create key performance indicators that would allow a country to swap its debt for climate investments and climate resilience or in a mitigation program. It is important that you guys keep pressuring us to find the solution. It’s not easy. The World Bank invented carbon trading when the world didn’t yet have the Kyoto Protocol.”
The World Bank has estimated that trading in carbon credits could reduce the cost of implementing countries’ nationally determined contributions (NDCs) by more than half – by as much as $250 billion by 2030.
The Bahamas is seeking to enter the carbon market by the start of 2023, invoking Article 6 of the Paris Agreement, which allows countries to voluntarily cooperate with each other to achieve emission reduction targets set out in their NDCs.
Georgieva urged the prime minister to continue to push for climate justice and fair climate financing, but noted the need – as highlighted in a recent IMF report – for even emerging markets to implement carbon taxes.
“We also have to create real incentives for businesses and households to reduce emissions by introducing where it doesn’t exist and increasing where it does exist, carbon prices. Not today, because energy prices are high and to say we are going to have a high carbon price is not going to work,” she said.
“But we know that energy prices are going to go down eventually and when they go down, carbon prices must step in and go up. Here is the data, good news, carbon prices globally doubled in the last year. It was $3/ton and now it is $6/ton. Bad news, where do we have to be to actually reach the Paris Agreement? We have to be at $75/ton by 2030. So pressure us. Our institutions are really important when it comes down to policies. Pressure us with bringing policies to countries.”
In a working paper published this month entitled “The Case for Climate Change Adaption and Mitigation in Small Island States”, the IMF – listing The Bahamas as the fifth most vulnerable Caribbean nation to climate change, suggested governments to consider carbon taxes or “fee-bates” as a mitigation and adaptation measure.
A study included in the working paper concluded that at US$50 per metric ton of CO2 emissions, a carbon tax would yield additional revenues amounting to 0.4 percent of gross domestic product in The Bahamas and would have an insignificant economic impact at -0.1 percent.