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046 FINANCE AND INVESTMENTTEN MYTHS ABOUT CLIMATE CHANGE POLICYAs Managing Director of the International Monetary Fund, I have spoken out about the need to prevent ourselves becoming “roasted, toasted, fried, and grilled”, by global warming. I would like to take this opportunity to dispel some common myths about the appropriate policy response, and to set out how the Fund can help move policy forward. RECOGNIZING AND DISPELLING THE MYTHS There are huge uncertainties about future climate change. Maybe global warming will be less severe than scientists are projecting, but it could also be a lot more severe, and the risks from collapsing ice sheets, shifting deserts and monsoons, and destruction of the marine food chain are, quite frankly, scary. Myth number one is that we should delay mitigation action until the science is more certain. On the contrary, it makes sense to insure now against the risks by cutting emissions, just as we routinely take out insurance against the risk of damages to our homes and cars. How much action to cut emissions is needed is for other organizations to study, and for country governments to decide, initially through mitigation pledges made for COP21 in Paris. The Fund’s expertise comes in on the implementation side – what policy instruments are appropriate to help countries meet these pledges and how these policies should be designed.Myth number two is that a plethora of complex and cumbersome government policy interventions is CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND (IMF)the best way to reduce emissions, carbon dioxide being the most important – subsidies for wind farms, solar panels, biofuels, public transport, electric vehicles; regulations on the energy efficiency of buildings, lighting, cars, planes, water heaters, refrigerators, industrial machinery, etc. I would push back somewhat on this approach as it is inefficient for climate policy and administratively complex. Instead, we at the Fund believe that carbon pricing – essentially charging fossil fuels for their carbon content – needs to be the centerpiece of mitigation efforts. As these carbon charges are reflected in higher prices for fossil fuels, electricity and so on, this automatically promotes the full range of opportunities for mitigating emissions – not only those just mentioned, but also opportunities that are impractical to regulate (like making the right energy choice, driving less and better, or turning off the light and turning down the air conditioner). And all this with just one policy instrument!Some might ask (though perhaps a little less vocally in light of lower energy prices) if consumers and firms do not already pay enough for energy? The Fund’s position on this (myth number three) is clear: to get the most out of labour, capital, and other resources, countries need to allocate them efficiently across different sectors of the economy, and to achieve this, product prices need to reflect not only the cost of supplying those products, but also any environmental costs of using them. In fact, we think – and surely this is the consensus among economists – that prices paid by users of energy, or energy-related products, need to reflect the full range of environmental costs (air pollution, road traffic congestion…), not just global warming. There is much at stake here: according to the Fund’s Right: Christine Lagarde