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Political Science > Environmental Policy

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Cover Staff Climate Notes
Embedded in Nature: Nature-Related Economic and Financial Risks and Policy Considerations
Charlotte Gardes-Landolfini, William Oman, Jamie Fraser, Mariza Montes de Oca Leon, and Bella Yao
The economy is embedded in, and dependent on, nature. Yet economic activity is degrading nature at an unprecedented pace. Interacting with climate change, nature loss and transformation generates significant threats to the global economy and financial system. However, work on the implications of nature-related risks for macroeconomic and financial sector policies remains at an early stage. This note seeks to contribute to this emerging policy space in three main ways: (i) it proposes a conceptual framework for understanding nature-related risks by mapping out macroeconomic transmission channels, emphasizing their impact on the economy and financial systems through “double materiality;” (ii) it conducts empirical analysis, finding that nearly 38 percent of bank loans of the 100 largest global banks are to harmful subsidies-dependent sectors and 44 percent are exposed to conservation areas under the Global Biodiversity Framework, and that industries most exposed to nature degradation are not well prepared to manage these risks; and (iii) it discusses takeaways for macroeconomic and financial sector policies and frameworks.
Keywords:
nature; environment; macroeconomics; macroeconomic policies; financial stability; banks; nature-related risks; financial regulation; financial supervision; Minsky moment; ecosystem services; planetary boundaries.; IMF staff climate note; ecosystem service; biodiversity loss; biodiversity conservation; biodiversity hotspot; Environmental policy; Climate change; Financial sector policy; Natural resources; Global
Cover High-Level Summary Technical Assistance Reports
Jordan: Climate Policy Diagnostic
Suphachol Suphachalasai, Hasan Dudu, Diala Al Masri, Fabiana Machado, Junko Mochizuki, and Karlygash Zhunussova
This technical assistance conducts a climate policy diagnostic for Jordan, covering climate adaptation and mitigation policy, as well as enabling institutions. Jordan faces acute challenges of climate-food-water nexus—innovative climate policy approaches are key, given limited fiscal space. While Jordan needs to strengthen the investment climate for climate investment through streamlining existing policies and alleviating critical barriers, making social policy more shock-responsive and strengthening risk management can go a long way in building resilience. As climate-related risks globally intensify, the government is encouraged to move toward a risk-informed policy and financing strategy.
Keywords:
fiscal policy; climate adaptation; climate mitigation; Jordan climate policy diagnostic; mitigation policy; climate policy approach; Policy solution; climate policy solution; Climate policy; Climate finance
Cover IMF Working Papers
Adding Fuel to the Fire: How Weather Shocks Intensify Conflict
Sidra Rehman and Laura Jaramillo
Do weather shocks worsen conflict around the world? To answer this question, this paper uses an innovative dataset created by using georeferencing to match weather and conflict data at the subregional level on a monthly frequency across 168 countries over 2013 to 2022.The empirical results show that higher temperature exacerbate conflict where it already exists. Estimations indicate that, in a high emissions scenario and all else equal, by 2060 conflict deaths as a share of the population for a median country facing conflict could increase by 12.3 percent due to rising temperatures. These findings underscore the importance of integrating climate resilience into peace and security efforts and designing climate adaptation policies that support conflict prevention and resolution.
Keywords:
conflict; temperature; precipitation; climate change; weather shock; conflict intensity; IMF working paper No. 24/112; impact of weather; precipitation shock; Natural disasters; Food security; East Africa; Middle East
Cover High-Level Summary Technical Assistance Reports
Islamic Republic of Mauritania: Climate Mitigation Policy Diagnostic
Diego Mesa Puyo, Zhiyong An, Thomas Benninger, and Nate Vernon
Mauritania requested capacity development from the Fiscal Affairs Department on carbon taxation, fossil fuel pricing and fiscal aspects of hydrogen development. This is a high-level summary of the technical assistant and the recommendations provided to the authorities. The report assesses options to gradually introduce a carbon tax to bring the country in line with its Nationally Determined Contribution for 2030 and net-zero pledge for 2050, including targeted support for vulnerable households. It then reviews approach to price fossil fuel products and proposes a revised methodology better aligned with international petroleum markets, along with a fiscally neutral smoothing mechanism to mitigate the impact of abrupt price changes on Mauritanian consumers. Finally, the report evaluates fiscal aspects related to the development of the low and zero-emissions hydrogen to ensure the country continues to position itself as an attractive investment destination without foregoing future revenue streams.
Keywords:
Carbon Pricing; Carbon Taxes; Fiscal Policy; Climate Mitigation; climate mitigation policy diagnostic; high-level summary; tax volatility; hydrogen development; price setting; Carbon tax; Fuel prices; Climate policy; Non-renewable resources
Cover IMF Staff Country Reports
Republic of Kazakhstan: Financial Sector Assessment Program-Technical Note on Climate-Related Risks and Financial Stability
International Monetary Fund. Monetary and Capital Markets Department
This paper highlights the Technical Note on Climate-Related Risks and Financial Stability for the Republic of Kazakhstan Financial Sector Assessment Program. Domestic and global climate policies are expected to negatively affect Kazakhstan’s economy, its firms, industries, and banks, with heterogenous impacts across industries and banks. Improving and harmonizing data can be the first step to enhance interagency coordination and assess climate-related risks. Given the potential for substantial risks associated with climate change and climate mitigation actions, the authorities should develop capacity to conduct climate stress testing. While this analysis focuses on transition risk, Kazakhstan also faces physical risks, which require further assessment. The intensity and frequency of floods and droughts in Kazakhstan are expected to increase with climate change. Floods and droughts can affect crop yield and production, energy system operation, and major infrastructure and result in significant economic losses. Moreover, climate change, together with the onset of El Niño, will greatly increase the likelihood of extreme events in the next five years and increase physical risk in the near term.
Keywords:
IMF-World Bank Financial Sector Assessment Program; Climate-related TRANSITION; FSAP finding; Kazakhstan's greenhouse gas emissions; cost of goods sold; Climate change; Climate policy; Global
Cover IMF Staff Country Reports
Algeria: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper examines the macroeconomic and fiscal implications of climate change in Algeria. It highlights a range of risks associated with the projected shifts in weather patterns and Algeria’s own hydrocarbon-reliant growth model in the context of the global energy transition. The projected shift in climate patterns over the coming decades poses risks to prosperity, food security, and social development in the region, with most of its population already living under challenging climate conditions. The paper also discusses fiscal policy options to achieve Algeria’s climate goals. An analysis based on the joint IMF-World Bank Climate Policy Assessment Tool suggests that even partial elimination of existing energy subsidies would help Algeria achieve its greenhouse gases emission reduction goals, boost fiscal revenue, encourage the expansion of renewable energy, and generate considerable environmental and public health benefits. Those reforms would create fiscal space for priority budget spending including on targeted social transfers and investment in adaptation to climate change. Strengthening public finance management would enable Algeria to maximize the growth and green dividend of public spending.
Keywords:
addressing climate change challenge; B. fiscal policy; CPAT simulation; emissions of greenhouse gases; B. Algeria's climate change; Climate change; Greenhouse gas emissions; Climate policy; Natural disasters; Global
Cover Technical Assistance Reports
Arab Republic of Egypt: Technical Assistance Report-Climate Public Investment Management Assessment
International Monetary Fund. Fiscal Affairs Dept.
This report finds that Egypt has implemented important improvements in climate-aware planning and coordination across the public sector, and some initial steps to reflect climate change issues in appraisal and selection of investment projects, but that significant work remains. So far there has been limited progress in ensuring that budgeting, portfolio management and fiscal risk management is climate sensitive. In addition, many of the weaknesses in the overall framework for public investment described in a separate report, also undermine the capacities for climate-sensitive public investment management. The mission makes three main recommendations to address current weaknesses and further improve the climate change awareness of public investment management: 1) Integrate national climate strategies and objectives for both climate change adaptation and mitigation in national, sectoral, construction and spatial planning processes; 2) Reflect climate change considerations in project selection, budgeting, and portfolio management decisions; 3) Strengthen management of climate-related fiscal risks.
Keywords:
Arab Republic of Egypt; CPIMA; Investment; Infrastructure; Efficiency; Climate.; IMF's Fiscal Affairs Department; Ministry of petroleum; climate PIMA; Ministry of housing; FAD expert; Climate change; Public investment spending; Climate finance; Global
Cover Staff Climate Notes
Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design
Charlotte Gardes-Landolfini, Pierpaolo Grippa, William Oman, and Sha Yu
The transition to a low-carbon economy, which is needed to mitigate climate change and meet the Paris Agreement temperature goals, has been affected by the supply chain and energy supply disruptions that originated during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent energy crisis and exacerbation of geopolitical tensions. These developments, and the broader context of the ongoing “polycrisis,” can affect future decarbonization scenarios. This reflects three main factors: (1) pullbacks in climate mitigation policies and increased carbon lock-in in fossil fuel infrastructure and policymaking; (2) the decreasing likelihood of continuous cost reduction in renewable energy technologies; and (3) the likely intensification of macroeconomic shocks amid increasing geoeconomic fragmentation, and the associated policy responses. In this context, the note assesses the implications of the polycrisis for hypothetical scenarios used to assess climate-related financial risks. Following an analysis of the channels through which these effects are likely to materialize over short- and long-term horizons and some policy implications, the note proposes potential adjustments to the design of the climate scenarios used by financial institutions, central banks, and financial sector supervisors and regulators within their risk management frameworks.
Keywords:
Climate scenarios; polycrisis; climate risks; carbon lock-in; risk assessment; geoeconomic fragmentation; energy transition; energy security; disorderly transition; trade multilateralism; fossil fuel development; IMF staff climate note; IMF staff climate NOTE 2023/003; climate scenario; Renewable energy; Climate policy; Climate change; Non-renewable resources; Global; Central America; Caribbean