The IMF has published a report pushing for the implementation of a stringent worldwide carbon tax, explaining that the Paris Agreement is insufficient to address climate change.
Ahead of the IMF/World Bank annual meetings in Washington, the IMF published the executive summary and first chapter of “Fiscal Monitor: How to Mitigate Climate Change,” in which it explains how the world could limit global warming to 2 degrees C, the level scientists consider safe. The report argues that carbon taxes placed on fossil fuels in proportion to their carbon content are the “most powerful and efficient” tools to reduce fossil fuel CO2 emissions.
“Limiting global warming to 2°C or less requires policy measures on an ambitious scale, such as an immediate global carbon tax that will rise rapidly to $75 a ton of CO2 in 2030. Under such a scenario, over 10 years electricity prices would rise, on average, by 45 percent cumulatively and gasoline prices by 15 percent, for households, compared with the baseline,” the executive summary states.
Ireland recently announced an immediate €6-per-metric-ton increase in carbon pricing on auto fuels as the first step toward the government’s goal of increasing carbon pricing to €80 per metric ton by 2030 to curb the damaging effects of greenhouse gas emissions. The announcement was made during Finance Minister Paschal Donohoe’s presentation of the budget in case of a no-deal Brexit.
Carbon tax revenue could be used to cut other taxes, reduce fiscal deficits, or pay an equal dividend to the whole population, the IMF report says, noting that a key challenge is obtaining enough domestic and international support for how a country distributes the costs and benefits of the tax.
Other mitigation instruments the IMF suggested are emission trading, regulations, or “feebates,” which the report defines as systems of fees and rebates on products or activities with above- or below-average emission intensity. According to the report, emissions trading systems would be as effective as a carbon tax if applied to as wide a range of economic activities.
IMF Managing Director Kristalina Georgieva expressed the need for a carbon tax in an October 8 speech discussing the outlook and priorities for upcoming meetings.
“[Climate change] is a crisis where no one is immune and everyone has a responsibility to act. One of our priorities at the IMF is to assist countries as they reduce carbon emissions and become more climate resilient,” Georgieva said. “New research in our upcoming Fiscal Monitor confirms that carbon taxes can be one of the most powerful and efficient tools. But the key here is to change tax systems, not simply add a new tax.”
IMF staff described global warming as a “clear and present threat” in an October 10 IMFBlog post. “Actions and commitments to date have fallen short. The longer we wait, the greater the loss of life and damage to the world economy. Finance ministers must play a central role to champion and implement fiscal policies to curb climate change. To do so, they should reshape the tax system and fiscal policies to discourage carbon emissions from coal and other polluting fossil fuels,” they wrote.
By Annagabriella COLON
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