IMF Work on the Environment
Highlights
- UNEP and GIP: Financing for the Sustainable Development Goals: The role of fiscal reforms, revenue management and sovereign wealth funds in the extractive sector, December 7-8, 2016, Bangkok, Thailand
- IMF Board Paper: Small States’ Resilience to Natural Disasters and Climate Change: Role for the Fund, December 12 2016
- Vitor Gaspar, Director, Fiscal Affairs Department, IMF: The Role of Carbon Pricing in Implementing the Paris Agreement, October 2016
The Managing Director’s Statement on the Role
of the Fund in Addressing Climate Change
The Fund has a role to play in helping its members address those challenges of climate change for which fiscal and macroeconomic policies are an important component of the appropriate policy response. The greenhouse gas mitigation pledges submitted by over 160 countries ahead of the pivotal Climate Conference in Paris in December represent an important step by the international community towards containing the extent of global warming. Download the MD's Statement.

Fair Weather or Foul? The Macroeconomic Effects of El Niño
This paper contributes to the climate–macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on growth and inflation of different countries as well as global commodity prices. The results show that while Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries (including the United States and European region), an El Niño occurrence has a growth-enhancing effect. Furthermore, most countries in the sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase.

Climate Mitigatin in China: Which Policies are Most Effective? July 2016
For the 2015 Paris Agreement on climate change, China pledged to reduce the carbon dioxide (CO2) intensity of GDP by 60-65 percent below 2005 levels by 2030. This paper develops a practical spreadsheet tool for evaluating a wide range of national level fiscal and regulatory policy options for reducing CO2 emissions in China in terms of their impacts on emissions, revenue, premature deaths from local air pollution, household and industry groups, and overall economic welfare. By far, carbon and coal taxes are the most effective policies for meeting environmental and fiscal objectives as they comprehensively cover emissions and have the largest tax base.

After Paris: Fiscal, Macroeconomic and Financial Implications of Global Climate Change
The December 2015 Paris Agreement lays the foundation for meaningful progress on addressing climate change—now the focus must turn to the practical policy implementation issues. Against this background, this paper takes stock of the wide-ranging implications for fiscal, financial, and macroeconomic policies of coming to grips with climate change.
IMF Books

Getting Energy Prices Right: From Principle to Practice
Chapter 1 |
Spreadsheet tool on energy taxes

Implementing a US Carbon Tax : Challenges and Debates
Although the future extent and effects of global climate change remain uncertain, the expected damages are not zero, and risks of serious environmental and macroeconomic consequences rise with increasing atmospheric greenhouse gas concentrations. Despite the uncertainties, reducing emissions now makes sense, and a carbon tax is the simplest, most effective, and least costly way to do this. At the same time, a carbon tax would provide substantial new revenues which may be badly needed, given historically high debt-to-GDP levels, pressures on social security and medical budgets, and calls to reform taxes on personal and corporate income. This book is about the practicalities of introducing a carbon tax in the United States, set against the broader fiscal context.

Energy Subsidy Reform : Lessons and Implications
Energy subsidies have wide-ranging economic consequences. Although they are aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd out priority public spending, and depress private investment, including in the energy sector. This book provides (1) the most comprehensive estimates of energy subsidies currently available for 176 countries and (2) an analysis of "how to do" energy subsidy reform, drawing on insights from 22 country case studies undertaken by the IMF staff and analyses carried out by other institutions.

Fiscal Policy to Mitigate Climate Change
Efforts to control atmospheric accumulations of greenhouse gases that threaten to heat up the planet are in their infancy. Although the IMF is not an environmental organization, environmental issues matter for the organization's mission when they have major implications for macroeconomic performance and fiscal policy. Climate change clearly passes both these tests. This volume provides practical guidelines for the design of fiscal policies (carbon taxes and emissions trading systems with allowance auctions) to reduce greenhouse gases. Not only are these instruments potentially the most effective at exploiting emission reduction opportunities in the near and longer term, but they can also generate for many countries a valuable new source of government revenue.
IMF Work on the Environment
While economic development is critical for lifting people out of poverty and raising living standards for the broader population, it also causes harmful side effects—particularly for the environment—with potentially sizeable costs for the macro-economy.
For example, rising atmospheric accumulations of greenhouse gases could substantially raise global temperatures, posing considerable risks. Poor air quality is a major human health problem. And road congestion can impose substantial burdens on urban economies, by reducing the productive time of the workforce.
Fiscal instruments (emissions taxes, trading systems with allowance auctions, fuel taxes, charges for scarce road space and water resources, etc.) can and should play a central role in promoting greener growth. These instruments are:
- effective at reducing environmental harm—so long as they are carefully targeted at the source of the problem (e.g., emissions);
- cost-effective (i.e., they impose the smallest burden on the economy for a given environmental improvement)—so long as the fiscal dividend from these policies is exploited (e.g., revenues are used to strengthen fiscal positions or reduce other taxes that discourage work effort and investment);
- strike the right balance between environmental benefits and economic costs—so long as they are set to reflect environmental damages.
And there is plenty of scope for fiscal reform. Many countries subsidize the production and consumption of fossil fuels (rather than charging to discourage their use). And even when energy is heavily taxed, these taxes may not be very effective from an environmental perspective (e.g., taxes may be imposed on electricity use or vehicle sales rather than emissions or traffic congestion).
The Fund promotes the use of fiscal reform to address environmental problems through:
- analytical work—for example, staff published a collected volume of papers on designing fiscal policy to mitigate greenhouse gases; the IMF assesses the magnitude of energy subsidies; and staff quantify environmental damages to provide guidance on appropriate levels of energy taxes in different countries.
- technical assistance—to member countries interested in environmental tax reform.
- outreach activities—including regular presentations by staff at conferences (e.g., UN climate meetings) and events the IMF cosponsors with other international organizations and research institutes (see for example Fiscal Policies and the Green Economy and Economics of Carbon Taxes).
IMF Work on Energy Subsidies

IMF and Reforming Energy Subsidies
Energy subsidies are projected at US$5.3 trillion in 2015, or 6.5 percent of global GDP, according to a recent IMF study. Most of this arises from countries setting energy taxes below levels that fully reflect the environmental damage associated with energy consumption. Read more...
Analytical Work
The IMF's work includes research on 'getting the prices right' (to reflect environmental side effects in energy prices) and providing the right incentives to help countries address climate change and other environmental challenges. Fiscal instruments, either environmental taxes or systems of pollution rights sold by the government, are the most effective instruments for exploiting near and longer-term options for reducing emissions (e.g., investments in renewables and energy efficiency) while at the same time providing a potentially valuable source of government revenue.
The IMF recently published a handbook for policymakers, Fiscal Policy to Mitigate Climate Change, with many practical suggestions for designing and implementing fiscal instruments to reduce greenhouse gas emissions.
A paper prepared for the IMF Board Energy Subsidy Reform: Lessons and Implications measures both direct subsidies for energy, and indirect subsidies from the failure to charge for environmental side effects, and provides practical guidance for implementing subsidy reform.
In work for the G20 in collaboration with the World Bank and others, IMF staff evaluated a range of alternative fiscal instruments as a source of revenue for climate finance, including carbon taxes and other domestic instruments, and charges on international aviation and maritime fuels.
IMF Papers
Related work at the IMF covers, for instance, the macroeconomic, fiscal, and financial implications of climate mitigation and adaptation policies; the appropriate design of fuel and other environmental taxes; the measurement of energy subsidies and protection of the poor when they are scaled down; border tax adjustments; and the taxation of resource industries.
- See, for example:
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- Small States’ Resilience to Natural Disasters and Climate Change: Role for the Fund, December 2016New
- Enhancing Resilience to Natural Disasters” from the October 2016 REO for Sub-Saharan Africa , October 2016New
- Gone with the Wind : Estimating Hurricane and Climate Change Costs in the Caribbean, October 2016New
- Investing to Mitigate and Adapt to Climate Change: A Framework Model, August 2016
- Reflections on the International Coordination of Carbon Pricing , June 30, 2016
- Climate Mitigation in China : Which Policies Are Most Effective?, July 25, 2016
- Reforming the EU Energy Tax Directive: Assessing the Options, February 2016
- After Paris: Fiscal, Macroeconomic and Financial Implications of Global Climate Change, January 2016
- The Unequal Benefits of Fuel Subsidies Revisited : Evidence for Developing Countries, November 2015
- Policies in Support of Selected Sustainable Development Goals , September 2015
- Carbon Tax Burdens on Low-Income Households: A Reason for Delaying Climate Policy?, August 2015
- Fair Weather or Foul? The Macroeconomic Effects of El Niño, IMF Working Paper, May 2015
- How Large Are Global Energy Subsidies?, IMF Working Paper, May 2015
- Is the Glass Half Empty or Half Full? Issues in Managing Water Challenges and Policy Instruments, by Kalpana Kochhar, Catherine Pattillo, Yan Sun, Nujin Suphaphiphat, Andrew Swiston, Robert Tchaidze, Benedict Clements, Stefania Fabrizio, Valentina Flamini, Laure Redifer, Harald Finger, and an IMF Staff Team, June 2015
- Designing Fiscal Policy to Address the External Costs of Energy, by Ian Parry, December 2014
- How Much Carbon Pricing is in Countries' Own Interests? The Critical Role of Co-Benefits, by Ian Parry, Chandara Veung, and Dirk Heine, September 2014
- The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India, by Rahul Anand, David Coady, Adil Mohommad, Vimal Thakoor, and James P. Walsh, May 2013
- Energy Subsidy Reforms: Lessons and Implications, January 2013
- The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries, November 2012
- Environmental Tax Reform: Principles from Theory and Practice to Date by Dirk Heine, John Norregaard, and Ian W.H. Parry, July 2012
- Going Green, F&D article by Luc Eyraud and Benedict Clements, June 2012
- International Fuel Tax Assessment: An Application to Chile by Ian W.H. Parry and Jon Strand, July 2011
- Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius by Ian W.H. Parry, June 2011
- Petroleum Product Subsidies: Costly, Inequitable, and Rising, February 2010
- Climate Policy and the Recovery, December 2009
- The Fiscal Implications of Climate Change by the Fiscal Affairs Department, IMF, March 2008
- Climate Change and the Global Economy, Chapter 4, World Economic Outlook, April 2008
- Small States’ Resilience to Natural Disasters and Climate Change: Role for the Fund, December 2016New