## Mitigating Climate Change: Growth- and Distribution-Friendly Strategies

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**Canonical URL:** [Mitigating Climate Change: Growth- and Distribution-Friendly Strategies](https://www.imf.org/-/media/files/oap/oap-home/2021/climate-outreach-oap.pdf)

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### Key takeaways (October 2020 WEO Chapter 3, IMF Research)
- Net zero emissions by 2050 (NZE by 2050) is feasible and would boost incomes in the long run and avoid catastrophic risk.
- The window for limiting warming to 1.5-2C (net zero emissions in 2050) is closing rapidly; emissions are on course to raise temperature by 3-6C by 2100.
- An initial green investment push combined with steadily rising carbon prices would deliver needed emissions reductions with reasonable output effects: an initial boost to global GDP and employment followed by moderate output losses in the medium run.
- Development of new green technologies (including through R&D support) reduces transitional output costs substantially.
- Large cross-country differences in output effects, with most oil producers and countries with fast population and economic growth bearing larger costs in the medium run; these must be weighed against avoided damages from climate change and co-benefits.
- Carbon-revenue recycling can compensate poor households and support job transitions.

### Policy package and pathway to net zero by mid-century
- Objective: Reaching net zero emissions by mid-century in a growth-, employment-, and distribution-friendly way.
- Model framework: G-cubed global macro model with sectoral detail and a stylized Integrated Assessment Model with endogenous technological change.
- Comprehensive macro package components:
  - Green supply policies: subsidy on renewables production + 10-year green public investment program.
  - Carbon pricing: gradual (low starting levels, high growth rate). Between $40 and $150 a ton of CO2 in 2050.
  - Compensatory transfers to households: ¼ of carbon tax revenues to protect the purchasing power of poor households.
  - Supportive macro policies: fiscal easing that requires debt financing for the first decade and occurs amid low-for-long interest rates (given low-inflation context).

### Emissions, GDP, and timeframe effects
- Global CO2 emissions trajectory simulated under the policy package (Gigatons of CO2) shows substantial reductions toward mid-century.
- Impacts on global real GDP (deviation from baseline, percent):
  - Initial periods show a green stimulus effect boosting growth.
  - Medium run (2036-38) and longer run (2050-52) show moderate output deviations; charts separate effects of green infrastructure and subsidy, carbon pricing and transfer, avoided damage, and co-benefits.
- Annual global real GDP growth (percent change) tracked across 2020, 2025, 2030, 2035, 2040, 2045, 2050 scenarios (baseline and simulation totals).

### Employment and job reallocation
- Environmental policies lead to job reallocations away from carbon-intensive activities (coal mining, shale oil and gas production, carbon-intensive manufacturing, transport) toward low-carbon sectors.
- Econometric evidence suggests policies have succeeded in reallocating jobs from high- to low-carbon sectors, though worker transitions can involve costs.
- Global employment, by sector: Contributions to deviation of total employment from baseline (percent) show positive net employment effects when including green stimulus and investment.
- Job multipliers (Job-years per gigawatt hour; levelized over lifetime of utility) indicate higher multipliers for many low-carbon technologies versus fossil fuel generation; relative scale shown across technologies such as Energy efficiency, Solar PV, Hydro (small), Geothermal, Wind, Nuclear, Coal, Natural gas.

### Role of green technological progress
- Development of technologies is a key enabler of the transition and reduces transitional costs.
- Simulation results: Global output relative to baseline (percent deviation) is improved when R&D subsidies and endogenous technical change are included, allowing for a lower carbon tax over time.
- Electricity sector example: low-carbon technologies already exist and are economically competitive; technology transfers remain an important question.
- Policy implication: complement carbon pricing with R&D subsidies early on.

### Inclusion, distributional impacts, and compensatory measures
- Low-income households are more impacted in many countries because they spend a relatively larger share of income on energy-intensive goods and tend to be employed in low-skill occupations in carbon-intensive sectors.
- Public opinion in support of environmental protection shown across skill and occupation groups.
- Distributional impact of a carbon tax (example: Impact of a 50 USD Carbon Tax under different recycling options for revenues):
  - Consumption of bottom two quintiles (percent deviation from baseline) differs by recycling option and country (United States, China).
  - Policies to protect low-income households: redistributing about 1/6 to 1/4 of carbon revenues in targeted transfers to protect consumption of bottom quintile; increasing government spending on low-carbon sectors to support job transitions.
- Recommended revenue recycling: ¼ of carbon tax revenues targeted to protect poor households (as part of the comprehensive package).

### Medium- to long-term gains and co-benefits
- Medium- to long-term output gains (percent of baseline GDP) show positive net effects when co-benefits and avoided damages are included, varying by country and model of climate damages (e.g., Burke-Hsiang-Miguel 2015; Nordhaus 2010).
- A green fiscal stimulus would support output and employment in the recovery from the Covid-19 crisis and help lower the costs of adjusting to higher carbon prices.
- Carbon pricing remains critical because higher carbon prices better discriminate sources of emissions and incentivize energy efficiency in addition to reallocating resources from high- to low-carbon activities.

### Conclusions and policy recommendations
- Net zero emissions by 2050 is a feasible objective that would boost incomes in the long run and avoid catastrophic risk, but the window is rapidly closing.
- An initial green investment push combined with steadily rising carbon prices would deliver needed emissions reductions at reasonable transitional output effects.
- A green fiscal stimulus supports recovery from the Covid-19 crisis and reduces adjustment costs to higher carbon prices.
- Carbon pricing should be central to mitigation strategies, complemented by R&D support, green public investment, and carefully designed revenue recycling to ensure a fair transition that compensates lower-income households and supports job transitions to low-carbon sectors.

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2021/climate-outreach-oap.pdf_