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IMF and the Environment

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Related Information

Moving Ahead with Carbon Pricing: A Call to Finance Ministers, By Christine Lagarde, Managing Director

IMF on Energy Subsidies

IMF Calls for Global Reform of Energy Subsidies: Sees Major Gains for Economic Growth and the Environment

IMF Staff Outlines Climate Change Financing Idea

Fiscal Policy to Address Energy’s Environmental Impacts

Factsheet: Climate, Environment and the IMF

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Tackling Climate, Development and Growth, a panel discussion at 2015 World Economic Forum

IMF Moving Forward on Energy Tax Reform


Carbon Taxes: Practicalities and Prospects, April 22, 2015

Energy Tax and Regulatory Policy
in Europe: Reform Priorities and Research Needs, November 13-14, 2014

Getting Energy Prices Right: From Principle to Practice, July 31, 2014

Reforming Fossil Fuel Subsidies
for an Inclusive Green Economy,
April 28-29, 2014

Energy Subsidy Reforms--Lesson and Implications, March 27, 2013

Lagarde on the economic case for climate action, October 8, 2013

Fiscal Policies Towards an Inclusive Green Economy, October 3-4, 2012

The economics of carbon taxes
November 13, 2012

Back to Rio—the Road to a Sustainable Economic Future, June 12, 2012

The Taxation of Petroleum and Minerals, September 9, 2010

Resources on Environmental Policy

Book: Energy Subsidy Reform: Lessons and Implications

Getting Energy Prices Right: From Principle to Practice

Pricing Database Tool

Green Fiscal Policy Network

Automatic Fuel Pricing Mechanisms with Price Smoothing: Design, Implementation, and Fiscal Implications

Fiscal Policy to Mitigate Climate Change: A Guide for Policymakers

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Energy subsidies in developing countries: Treating the disease while symptoms abate, January 13, 2015

Carbon Pricing: Good for You, Good for the Planet, September 17, 2014

The (non-) taxation of international aviation and maritime fuels: Anomalies and possibilities, September 9, 2014

Too Much At Stake: Moving Ahead with Energy Price Reforms, July 31, 2014

For Richer, Not Poorer: Energy Subsidies in India, June 24, 2013

Now more than ever: Reforming energy subsidies throughout the world
April 27, 2013

Sins of Emission and Omission in Durban, January 9, 2012


The Health Impacts of Energy
January 16, 2015

How Fiscal Policy Can Address Energy’s Environmental Impacts, July 31, 2014

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For more about the IMF's environmental work please contact Ian Parry at

IMF and the Environment

IMF Book: Implementing a US Carbon Tax : Challenges and Debates New

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. It consists of thirteen chapters, written by leading experts, covering the full range of issues policymakers would need to understand, such as the revenue potential of a carbon tax, how the tax can be administered, the advantages of carbon taxes over other mitigation instruments and the environmental and macroeconomic impacts of the tax. A carbon tax can work in the United States. This volume shows how, by laying out sound design principles, opportunities for broader policy reforms, and feasible solutions to specific implementation challenges.

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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).

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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.

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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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