Opinion: IMF must recognize need for just, feminist, green transition

For years, climate experts and activists alike have been calling for a phaseout of fossil fuels. How to do this equitably has always been the sticking point, as we saw at the 26th United Nations Climate Change Conference in Scotland this month.

The good news is that we are getting closer to a globally agreed phaseout. The bad news is that some of the world’s most powerful countries and institutions are still driving fossil fuel dependency. As a result, their vision of a transition is unlikely to be fair for lower-income countries.

Take the International Monetary Fund. It is slated to play a critical role in the global economic recovery from the COVID-19 pandemic. Kristalina Georgieva, its managing director, has emphasized that climate change is a risk to economic stability, and she reiterated this message at COP 26. With a new climate strategy in hand, she is positioning the institution to take a bigger role in climate efforts.

While a positive step, IMF must first consider how it has contributed to the climate crisis. Recent analysis by ActionAid USA and Bretton Woods Project found that since the adoption of the Paris Agreement in 2015, IMF has advised or encouraged more than half of its member countries to develop fossil fuel infrastructure.

Our analysis showed that it has also advised a third of its member countries to privatize state-owned enterprises related to energy, potentially leading to long-term commitments to support fossil fuel assets and leaving nations open to costly compensation claims from private investors if they try to phase out these energy sources.

Many of its recommendations to end public subsidies for fossil fuels have historically been demand-side and not supply-side solutions. This means higher costs for consumers instead of systemwide changes leading to a managed decline of fossil fuel production.

In short, IMF is way behind the curve in offering policy advice aligned with the low-carbon energy transition required to meet global climate goals. Mounting evidence suggests that instead of proactively helping member countries address the existential threat of climate change and the enormous financial risk it represents, the institution has instead promoted fossil fuel expansion and locked low- and middle-income countries into a reliance on coal, oil, gas, and other carbon-intensive exports.

Why does IMF's advice matter?

IMF has an outsize influence on global economic policy. Its annual surveillance reports assess the economic prospects of its member states, and its analysis and recommendations shape perceptions held by capital markets, particularly in LMICs.

The impact of these recommendations — which also form the basis for IMF loan programs — can’t be overstated. Research by Oxfam in 2020 found that 84% of IMF’s COVID-19 loans encouraged countries to adopt tough austerity measures in the aftermath of the crisis. A study by Boston University said that surveillance reports included limited discussion about the risks of continuing to invest in fossil fuels and not transitioning to clean energy.

Misguided advice from IMF, which has promised growth and foreign reserves from fossil fuels, could saddle LMICs with stranded assets as the global economy moves away from them, while also limiting countries’ flexibility by advising that they adopt austerity measures to limit public spending.

Take Mozambique. Between 2013 and 2019, IMF enthusiastically encouraged the country to support coal expansion, providing technical assistance to develop a regime of tax breaks for coal investment while encouraging cuts in other public spending, according to our analysis.

Instead of the promised boom, the coal industry has imploded, with the country’s largest coal mine operator shutting plants and planning its exit from the sector as part of a drive to decarbonize its business. This has contributed to Mozambique’s debt crisis, with the nation paying off “investments” intended to support an industry whose collapse was always predictable.

The only meaningful way for IMF to address climate change is to build an equitable approach to the energy transition into its country-level policy advice.

What can IMF do?

Some signs indicate that IMF is getting serious about engaging with climate issues. Its so-called comprehensive surveillance review, which will shape the institution’s country assessment procedures for the coming years, recommended in May that it recognize climate change as “macro-critical” — that is, contributing significantly to macroeconomic stability.

And IMF’s climate strategy, announced in July, proposed significant increases in its capacity to work on climate across surveillance and other areas of its mandate. It stated that it would add the equivalent of 95 additional positions to take on this work.

But IMF must do more to ensure its policy advice helps — or at least does not undermine — countries’ ability to move away from economic models that depend on fossil fuels. It must support a feminist, just, and green energy transition, placing the care and well-being of people and the planet at the center of policymaking. It is time to recognize that the current macroeconomic model is failing people and planet while pushing us to the brink of ecological collapse amid growing inequalities.

This necessitates IMF undertaking serious reforms to its policy orthodoxy and embracing a deep institutional shift. It should abandon its common austerity prescriptions, which make it harder for countries to undertake a rapid, just transition away from fossil fuels.

The lowest-income economies require new funds from wealthy nations and multilateral development banks to increase investment in renewables, decent green jobs, and gender-responsive public services. IMF can play a constructive role in helping nations to judge the costs of this transition and mobilize sources of public finance needed to achieve it.

Climate change is already disrupting the global economic stability that IMF was set up to safeguard. As IMF weighs how to respond to the climate crisis, it must adopt a consultative approach to policy advice that places an equitable approach at its core.