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Global Warming: De Rato Sees Signs That World Can Meet Climate Challenge

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
October 2007
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IMF Managing Director Rodrigo de Rato said that he finds “some encouraging signs that climate change is a challenge that the world can meet.” In an address to a Club of Rome conference held in Madrid on September 24, he called climate change “the most pressing environmental issue of the day.”

He also told the conference, which was sponsored by the international think tank, that although increasing life expectancy and falling birth rates are generally welcome developments in many countries, there are also some unpleasant economic effects of changing demographics that countries will have to cope with.

In remarks about the threat of global warming, de Rato said, “many suggest that we are closer to the tipping points that would turn change that is damaging into change that is catastrophic.” But he told the conference that he saw progress in how the world is dealing with dangerous climate change.

Emerging consensus

De Rato said the social consequences of greenhouse gas emissions are not borne mainly by those who do the emitting, and many of those at fault are “often among the most powerful individuals, companies, and countries,” whereas those most affected are often the least powerful, including future generations, who have no voice.

Still, he said, a consensus is emerging about the need to combat global warming. “Around the world, there are examples of individuals and companies voluntarily reducing their own emissions and lobbying their governments for political responses to the problem.”

Authorities must look for answers in the “same place that the problem originates, in economics,” and come up with a “reasoned assessment of the economic costs and benefits of climate change and of the policies that can be adopted to combat it. These include policies to mitigate climate change—to prevent what can be prevented—and also policies to adapt to climate change—to respond to what cannot be prevented.”

Cost estimates

He said the IMF has a role in helping analyze the impact of climate change. Its semiannual World Economic Outlook, released this month, will discuss estimates of the cost of climate change and evaluate some of the economic issues involved in the choice of methods to mitigate climate change—especially the main options of imposing taxes on greenhouse gas emissions or of setting caps on them, combined with a system of internationally traded permits.

He spoke on the same day that United Nations Secretary-General Ban Ki-moon met with top officials of 150 countries at UN headquarters in New York. Ban is trying to secure political commitments in advance of the UN Climate Change Conference in Bali in December, when negotiations are to begin on an international agreement to succeed the 10-year-old Kyoto Accord.

Demographic strains

In his Club of Rome speech, de Rato also discussed the impact of aging populations, which are likely to cause societies to produce less because of a relatively smaller labor force, place greater demands on health care systems, and strain pension systems. He noted that when the international think tank was founded nearly 40 years ago, the focus was on the risks of overpopulation, which continue in some parts of the globe.

But increasingly the concern has shifted to the economic effects of aging populations in both developed and major emerging market economies, he said. To “anticipate and manage the economic effects of demographic changes,” governments with aging populations will have to take a number of steps:

• Make structural reforms to improve productivity, “so that a relatively smaller active labor force will be able to produce more.” Such reforms as reducing tariff and legal barriers, opening markets to competition, and creating a more business-friendly environment “can all help to produce such an increase in productivity.” De Rato noted that today in the euro area there are four people in the age range of 15-65 for every person over 65, a ratio that will be closer to 2 to 1 by mid-century.

• Reduce labor market shortages by encouraging immigration and putting in place policies to integrate immigrants into their societies.

• Reform health care systems to improve efficiency, reduce market failures, emphasize preventive medicine, and improve health behavior by individuals.

• Raise retirement ages to reduce the pressure on pension systems, something that is already happening, accompanied by labor market changes that would improve job opportunities for younger and older workers alike.

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