BAKU, Azerbaijan, November 16. As part of COP29 in Baku, Trend News Agency proudly presents COP for Hope, a special project offering an unparalleled platform to hear from world leaders and trailblazers in politics, economics, science, and ecology, all united by a shared commitment to addressing today’s pressing climate challenges.
Today, we are honored to speak with Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF).
In an exclusive interview with Trend, Azour noted that recent years have brought some progress with new policy packages and rapid growth in renewable energy deployment.
"Implementing the Paris Agreement will among many things require sustaining the momentum on renewable energy use through carbon pricing and similar instruments. There is much more to do – we see 3 key priorities for action at COP29," he said.
Elevating Ambition
He pointed out that the world is not yet on track to net-zero.
"There remain substantial gaps in global ambition and implementation. Global emissions need to be reduced by 25-50 percent below 2019 levels by 2030 to stay on track with limiting warming to 2°C and 1.5°C respectively. But current NDCs would reduce global emissions by 12 percent – i.e. less than one quarter of what’s needed. Keeping 1.5C alive requires deep cuts in emissions in the next five years, otherwise countries will face an ‘emissions cliff edge’," Azour noted.
He noted that early next year, all countries will submit new NDCs for 2035 while revising their 2030 and 2035 emissions targets.
"If 2030 targets remain unchanged, global emissions would need to decline by 95 percent in 2030-2040 to achieve the 1.5°C target (i.e., an emission cliff edge). COP29 is the last major opportunity for the international community to set clear expectations for the next generation of NDCs. We want to see countries — especially the largest emitters — setting out intentions to submit bold and ambitious new NDCs. This can encourage other nations to follow suit and spur more action from investors and businesses," said Azour.
Climate Finance
He believes that COP29 should result in a New Collective Quantified Goal on Climate Finance (NCQG) that responds to developing countries’ needs.
"AEs and EMDEs should jointly agree on a more ambitious target for climate finance than the current $100 billion. A robust NCQG at COP29 could help give developing countries the assurance they need to set more ambitious emissions targets," Azour added.
Working together
"Climate challenges are global in nature, and we are more likely to succeed if we work together. The Fund will continue to do its part, delivering within its mandate and expertise," he said.
Further, Azour went on to add that the IMF’s mandate is to safeguard macroeconomic stability, a pre-requisite for sustainable growth and job creation.
"We help our members address those challenges of climate change for which fiscal, financial, and macroeconomic policies are an important component of the appropriate policy response, including how best to capture the opportunities of low-carbon, resilient growth.
At the IMF we are well-positioned to provide guidance to our member countries on designing comprehensive mitigation strategies, given our expertise on fiscal policies—which play a central role in nearly all aspects of climate mitigation—and regular dialogue with finance and other ministries," he said.
Azour noted that the Fund is supporting macro-resilience, delivering policy advice and capacity development support to help identify and implement strong climate mitigation and adaptation policies, and providing long-term lending to address long term challenges in the most vulnerable countries.
"Providing climate finance helps not only with decarbonization but also with macro-resilience and economic development. Through our Resilience and Sustainability Trust (RST), we provide long-term financing to low and vulnerable middle-income countries to address climate challenges. Our research shows that with $25 billion of annual climate finance invested in renewables, sub-Saharan Africa could boost electricity generation by 18 percent and increase annual growth by 0.8 percentage point over the coming decade," he said.
Forms of climate-related financial support by IMF provide to member countries
Azour noted that the creation of the Resilience and Sustainability Trust (RST) in 2022 was a major innovation to the IMF’s lending toolkit. It complements other IMF lending tools by providing longer-term affordable financing to help low-income and vulnerable middle-income members address longer-term structural challenges, including those from climate change.
"Twenty RSF requests have been approved by the Board with commitments of $9.6 billion, of which $3.1 billion has already been disbursed. RSF programs have been approved in Bangladesh, Barbados, Benin, Costa Rica, Cabo Verde, Cameroon, Cote d’Ivoire, Jamaica, Kosovo, Kenya, Madagascar, Mauritania, Moldova, Morocco, Niger, Paraguay, Rwanda, Senegal, Seychelles, and Tanzania. Many more countries have expressed interest in having an RSF program.
RSF arrangements can facilitate a broad set of policy reforms—including public financial management, fiscal policy, the financial sector, and macro-critical sectoral issues. While the RST can fill only a small fraction of the large climate-related financing (estimated in the trillions), through its unique ability to influence fiscal/financial/institutional policies, it can help create an enabling environment and foster additional financing from MDBs, development partners, and private sector players," he said.
Azour pointed out that the IMF has convened/co-convened roundtable discussions of the authorities and development partners and the private sector to discuss additional financing solutions for mitigation and adaptation.
"Good progress on fundraising for the Resilience and Sustainability Trust has been made ($48 billion as of end September), but timely delivery of existing pledges and additional pledges are needed to meet demand," he added.
Strategies suggested by IMF to foster resilience and sustainable growth
Azour noted that policymakers must balance cost-effectiveness, political feasibility, and budgetary impact.
"If the right measures are implemented immediately and progressively phased in over this decade, the costs will remain manageable and are dwarfed by the long-term costs of inaction. Stop-and-go policies and further procrastinating will only exacerbate the toll. Policies that rely heavily on spending measures – such as increasing public investment and subsidies for renewable energy – can entail large fiscal costs.
Carbon pricing should be an integral part of a well-designed policy mix, complemented with public investment support and sectoral policies, such as feebates or tradable performance standards. Fiscal incentives are also needed to reduce emissions from sources such as methane, forestry, and agriculture," he said.
Azour said the key fact is that carbon pricing has doubled in coverage over global emissions since 2015 – with schemes now operating in nearly 50 countries and covering about 25 percent of global emissions.
"Around 20 additional countries are planning to introduce carbon-pricing schemes. But the current global average carbon price is just $5, whereas we estimate the price needed to keep below 2 degrees Celsius is upwards of an additional $85 by 2030, and even higher for 1.5 degrees. Governments are spending over a trillion dollars a year on inefficient (explicit) subsidies that are making climate change and the environment worse – money that could be tapped to help solve the problem. Repurposing these wasteful subsidies can help promote a green and just transition.
Green subsidies and other public investments can help promote green innovation and address market failures, but careful design is needed to avoid wasteful spending, distortions in capital allocation across sectors, or creating trade tensions and protectionism," he said.
Azour believes that such policies should be time-bound, transparently presented in budgets under a strong governance framework, complemented with carbon pricing, and aligned with legal obligations imposed by trade agreements.
"Done right, such policies could accelerate decarbonization. But done wrong they could undermine global climate objectives, create excessive burden on public finances, distort trade and investment flows or give rise to a “subsidy race” that could harm developing countries. The green transition also offers an opportunity for workers. However, educational and labor policies that promote skill enhancement and gender inclusivity are needed to ensure a sufficient supply of workers for the green economy and that all workers can benefit.
One in 10 workers globally work in green jobs. Men currently hold close to two-thirds of these positions and women only one-third. Green jobs are associated with a 7 percent premium for men and an even higher premium of 12 percent for women, suggesting that men’s and women’s labor supply may not meet demand," he said.
He pointed out that the skills and adaptability of workers can support the green transition.
"Evidence suggests that economies with a robust supply of STEM workers and a more equal treatment of women are better placed to transition faster and at a lower cost to a green economy.
To secure broad public support, policies must ensure a just transition. Mitigation and adaptation strategies should include targeted measures for low-income households and other vulnerable groups. Key policies include: productive use of carbon price revenues; targeted transfers to mitigate the impact of the transition on those most vulnerable, enhanced social safety nets, lowering other taxes (notably labor taxes), active labor market policies (e.g. reskilling of workers in transition to green opportunities), and investing in education, health and infrastructure," said Azour.
IMF's outlook for Azerbaijan's economy
"Following the strong rebound from the pandemic, growth slowed down in 2023 to 1.1 percent, from 4.6 percent in 2022, but picked up again in January-September 2024 to 4.7 percent, driven by strong growth in non-hydrocarbon sector, particularly the construction, communication and transportation sectors.
In the medium term, real GDP growth is projected at about 2 ½ percent, with oil GDP growth slightly negative as oil production declines, and nonoil GDP growing at about 3 ½ percent. Inflation is projected to remain within the Central Bank of Azerbaijan’s target band of 4±2 percent. Projected elevated oil and natural gas prices will support the trade surplus," he said.
Azour noted that Azerbaijan’s long-term growth performance will depend on the authorities’ success in diversifying the economy and promoting private sector development.
"Azerbaijan 2030 plans to reduce dependency on hydrocarbons and to promote a more sustainable and diversified economy. The plan correctly emphasizes that the private sector should drive economic growth and employment, which would require improving the business environment, boosting the efficiency of state-owned enterprises, and increasing competition.
Deepening financial sector would mobilize savings and provide financing for investment. At the same time, continued macroeconomic stability will be important. On climate, Azerbaijan’s plan to raise the share of renewables in its energy-mix is welcome. It should be accompanied by other policies to reduce greenhouse gas emissions while remaining fiscally prudent, such as gradually withdrawing fossil fuel subsidies," he concluded.