Davos WEF
Davos WEF

'If you want to put a tax on people, go ahead': Lagarde and Mnuchin clash over energy transition

Key Points
  • Lagarde wants long-term thinking on how to push industry into changing energy use.
  • Mnuchin says 30-year economic models of environmental impacts are not possible.
  • The Treasury secretary says a carbon tax is a "tax on hard-working people."
A panel session on the closing day of the World Economic Forum (WEF) in Davos, Switzerland, on Friday, Jan. 24, 2020.
Bloomberg

The president of the European Central Bank, Christine Lagarde, and U.S. Treasury Secretary Steven Mnuchin laid bare their stark differences over how the world should transition to cleaner energy sources.

The corporate world's role in protecting the environment has been a central theme of this year's World Economic Forum in Davos, Switzerland.

Speaking on a panel Friday as the event drew to a close, Lagarde told the audience that central banks needed to lead the economic modeling of how changes to the environment should be costed and mitigated.

Lagarde said banks, accountants, companies and ratings agencies would need to move away from quarterly and medium-term forecasts and start thinking in terms of 30 years out.

Responding to the new ECB president directly, Mnuchin said he didn't think forecasting the cost of protecting the environment was possible.

"Christine, I think you can have a lot of people and model it, but I just don't want to kid ourselves. I think there is no way we can possibly model what these risks are over the next 30 years with a level of certainty, given what I think is the changes in technology along the way," he said.

Lagarde responded directly, suggesting that long-term modeling would help press firms to understand the cost and process of switching to new, and less carbon intensive, energy sources.

"If we can push companies into the direction of actually anticipating the transition, pricing it, and making sure that they move to cleaner and cleaner energy uses, then it helps," she said.

Interpreting that as a direct cost to a business, Mnuchin responded sharply.

"I don't think we know how to price these things," he said, adding that the current pricing of future greener energy sources was being inflated.

"So, I think we are overestimating the cost. So, if you want to put a tax on people, go ahead and put a carbon tax. That is a tax on hard-working people. I personally think the costs are going to be much lower 10 years from now — because of technology — than we think they are today," he said.

Earlier, Mnuchin contended that the U.S. had become much more efficient through carbon technology and the use of energy, but named China and India as countries which needed to offer "significant improvement in terms of environmental issues."