The US and Europe have clashed over the threat posed by global heating as Donald Trump’s finance minister downplayed the risks of a climate crisis during the final session of the World Economic Forum in Davos.
Steve Mnuchin, the US Treasury secretary, said the debate should be about “environmental issues” rather than climate change, that the costs were being over-estimated and that climate was only one of several concerns that needed to be discussed.
He reacted strongly after the president of the European Central Bank, Christine Lagarde, said it was vital to include climate risks into economic forecasts and Germany’s finance minister, Olaf Scholz, said his country was stepping up its fight to reduce the use of carbon.
“We don’t know how to price these risks and so we are over-estimating the costs”, Mnuchin said. “If you want to put taxes on people go ahead and put a carbon tax. That is a tax on hardworking people.”
Mnuchin said technology would provide the solution to reducing carbon emissions and that the costs of action would be lower in 10 years time.
“Environmental issues have an impact on the economy but it is one of many important issues.”
Mnuchin cited the Coronavirus health emergency, Iran’s nuclear ambitions and the possibility of oil prices hitting $120 (£92) a barrel, and the need to power development in poor countries as other problems that policy makers needed to be concerned about.
“There are way too many people in the developing world who don’t have access to electricity. We need to create an environment where they have better lives,” he said.
Mnuchin found himself in a minority of one on a panel that included the managing director of the International Monetary Fund, Kristalina Georgieva, and the Bank of Japan governor, Haruhiko Kuroda, as well as Lagarde and Scholz.
Georgieva said the investments that would be needed to transform economies could be the “silver bullet” that would lift the world economy from four lows: low productivity, low growth, low inflation and low interest rates.
“We need to think of policies that are good for the economy, good for the environment and good for people” she said. Green investment could provide a use for the world’s big pool of unused savings. “Not everything is doom and gloom.”
Lagarde said that pricing the cost of making the transition to a low carbon economy coupled with pressure on companies to disclose their exposure to climate crisis risk would persuade companies to move faster.
The ECB head said that, according to the marketing industry, there were three things that made people move: sex, fear and greed.
“I don’t want to talk about the first but the fear factor is there. Look at the complete disasters that are going on around the world.”
Turning to greed, Lagarde said the recent announcement from Larry Fink, the executive director of BlackRock, that the world’s biggest asset manager was moving to sustainable investment was an indication that companies were starting to worry about the impact of the climate emergency on their bottom line.
Scholz said Germany’s decision to pay out more than €40bn to coalmining regions and power companies to phase out coal plants was justified by the scale of the threat. “There is climate change and it will hurt us. It will have negative effects on the economy.
Britain’s departure from the EU next week had not entirely lifted the threat from Brexit, Lagarde said, noting that the negotiations this year over the new EU-UK trading arrangement had the potential to cause trouble.
“Brexit is a little bit less uncertain, but we still have that possible cliff edge in December of 2020. We don’t’ know exactly what the trade relationship will be. And it’s a big partner for the euro area, so that’s certainly a question mark.”
Scholz expressed relief that there had not been a “hard Brexit” and predicted that Germany would not take an economic hit from Britain’s departure.
“It will be more difficult for the UK because it needs its business model to be reorganised” Scholz said. He added that the City of London would be affected by Brexit.
“I think we will find solutions”, Scholz said, while warning the UK that there might not be a “special, competitive advantage of being outside” the EU.