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---

### Scope and objectives
- Uses a global computable general equilibrium model (IMF-ENV) to compare climate policies across major emitting sectors and countries.
- Geographic focus: G7 countries (plus Europe), China, and India.
- Sectoral focus: the power sector and energy-intensive and trade-exposed (EITE) industries.
- Policies compared:
  - Power sector: a carbon tax on electricity generation; a direct regulation on the fossil fuel share; a feed-in subsidy for solar and wind power generation (FIT, also referred to as feed-in subsidies); and a feebate system.
  - EITE industries: carbon pricing and regulation on the carbon emission intensity of the industry.
- Outcome variables analyzed include real GDP, investment, employment, household consumption, electricity prices, electricity supply, government revenues and spending, gross output, market shares of EITE industries, carbon leakage rates, and import bills of fossil fuels.

### Methodology and model design
- Model: IMF-ENV, a global, dynamic, sectoral CGE model built on ENVISAGE and the OECD ENV-Linkages Model.
- Key model features:
  - Neo-classical framework dealing only with real values and almost perfect markets.
  - Detailed sectoral and trade representation; emissions directly related to economic activities.
  - Vintage capital: new investment re-allocable; existing capital mostly fixed, implying lower short-term elasticities.
- Limitations:
  - No heterogeneous households (cannot analyze within-country distributional effects).
  - No endogenous technology (no endogenous R&D or technology spillovers).
  - No administrative and monitoring costs of policies.
- Scenario design:
  - Acting jurisdictions: nine countries (the G7 countries as well as China and India) and the EU.
  - Two sets: decarbonization of power sector; deeper decarbonization of power and EITE industries.
  - Power-sector policies calibrated to achieve identical cumulative CO2 reductions from fossil fuel combustion in power generation: regulation (20 percentage point reduction in fossil fuel share by 2030, with exceptions), carbon tax, feed-in-tariff, feebates.
  - All power policies calibrated to be budget neutral via changes in wage income tax rates (or VAT in sensitivity).
  - EITE scenarios: four sectors (“Iron and Steel”, “Chemicals”, “Non-metallic minerals”, “Pulp and paper”); policy variants include regulation on sectoral CO2 intensity (20 percent below baseline by 2030), uniform carbon tax, segmented carbon markets, fragmented carbon markets.
  - Fiscal neutrality maintained via adjustments in wage income tax rates.

### Theoretical considerations on relative costs
- Carbon pricing:
  - Incentivizes all margins of adjustment; delivers a given emission reduction at least cost when applied broadly.
  - Allocates reductions to sectors with greater substitution possibilities; generates revenue that can be recycled (e.g., lower wage tax).
  - Imposes visible per-unit emission payments; production factor mix is more expensive than unregulated case but revenue recycling offsets cost.
- Regulation:
  - Can be costlier when it creates heterogeneous implicit carbon prices and marginal abatement costs across sources.
  - Requires detailed sector-specific knowledge; risk of policy mistakes.
- Feebates:
  - Internalize price signals across generators while being revenue-neutral; production factor mix becomes more expensive than baseline.
- Feed-in subsidies:
  - Cause a rebound effect: cheaper renewable energy lowers equilibrium energy prices, increasing demand; subsidies must be large to displace fossil fuels, imposing large fiscal costs and higher total cost relative to direct-emission policies.
- Model omissions affecting cost assessment:
  - No endogenous technological change; no administrative/monitoring costs; cost estimates reflect only production factor mix and tax/subsidy financing.

### Political-economy considerations
- Energy prices are highly visible and can mobilize opposition to reforms that raise them.
- EITE industries are politically influential despite representing a modest share of overall GDP; competitiveness impacts matter.
- Therefore, assessments include energy prices and EITE market shares in addition to aggregate GDP.

### Key empirical findings — power sector (high-level)
- Aggregate costs:
  - A carbon tax, direct regulation on fossil fuel share, and feebate system have similar and small economic costs, below 0.2 percent of GDP for policies equivalent to a 20-percentage point decrease of the fossil fuel share.
  - Feed-in subsidies cost more than other options due to rebound effects and the need to finance subsidies.
- Electricity prices (2030):
  - Carbon pricing increases electricity prices by less than 10 percent (except France); increases between 3 and 8 percent for most countries; higher values in China, India, and Japan; lower in the US and UK.
  - Regulation and feebates increase prices by much smaller amounts.
  - Feed-in subsidies reduce prices by 5 to 15 percent depending on country.
- Electricity supply:
  - Policies that increase electricity prices decrease electricity supply and vice versa.
  - India and China show highest growth in electricity generation (percent deviation from 2021).
  - Feed-in subsidies increase electricity generation relative to BAU; carbon tax yields the lowest supply among scenarios considered.
- Fiscal impacts:
  - Carbon taxes generate government revenue usable to reduce distortionary taxes.
  - Feed-in subsidies generate fiscal costs between 0.3 and 0.8 percent of GDP depending on country, requiring increases in other taxes (notably labor taxes).

### Key empirical findings — EITE sectors (high-level)
- Regulation versus carbon pricing:
  - Where technical substitution possibilities are limited, regulation can be significantly more costly than carbon pricing.
  - Carbon tax allocates emission reductions to where they are cheapest and generates revenue to reduce distortionary taxes, keeping aggregate economic cost lower and producing a more even distribution of economic costs across sectors.
  - Sector-specific regulation risks heterogeneous implicit carbon prices and heterogeneous marginal abatement costs; avoiding larger costs requires detailed sectoral knowledge and raises risk of policy mistakes.
- Competitiveness:
  - Choice between carbon pricing and regulation in the power sector has little impact on competitiveness of EITE industries.
  - In EITE industries, carbon pricing better preserves overall competitiveness than hard-to-tailor regulations.
  - Feed-in subsidies and feebates in the power sector can help protect market shares of EITE industries relative to non-acting countries by keeping electricity prices lower, but can cause significant changes in market shares between acting countries due to different initial conditions in solar and wind use.
- Ambition effects:
  - Efficiency advantage of carbon tax over regulation increases with ambition (e.g., 30 percentage points vs 20 percentage points).
  - Marginal abatement costs increase dramatically with higher ambition, making cost-smoothing properties of carbon prices increasingly favorable.

### Quantitative policy-tool magnitudes and fiscal numbers (selected country figures)
- Additional carbon prices implied by a 20-percentage point decline in fossil fuel share vary by country: 13 USD (China) to 67 USD (UK).
- Feed-in subsidy rates (percent of production cost) range 22 to 45 percent, highest in France and Canada.
- Rebates to solar in feebates are all below 10 percent of production cost.
- Fees on coal (feebates) vary with coal share; selected figures (unit = percent of unit production cost or 2018 USD/t of CO2):
  - Canada: Economy-wide CO2 emission reduction -5.5; Additional carbon tax 39; Feed-in subsidies for wind and solar -45; Rebates for Solar power -4.2; Fees for Coal power 44.
  - China: -12; 13; -28; -8.8; 15.
  - France: -6.5; 43; -36; -1.6; 26.
  - Germany: -13.6; 45; -31; -6.3; 25.
  - India: -14.5; 15; -22; -6.3; 7.
  - Italy: -7.6; 63; -33; -4.2; 32.
  - Japan: -11.2; 38; -22; -4.1; 12.
  - UK: -10; 67; -26; -0.9; 21.
  - USA: -10; 17; -30; -3.3; 18.
- Fiscal impacts (carbon tax revenue percent of GDP; feed-in subsidy expenditures percent of GDP; labor tax rate change in percentage points):
  - Canada: Carbon tax revenue 0.02; Change in Labor Tax rate (carbon tax scenario) 0; Feed-in subsidy expenditures 0.7; Change in Labor Tax rate (feed-in subsidy scenario) 1.4.
  - China: 0.09; 1.7; 0.4; 3.3.
  - France: 0.01; 0.1; 0.4; 1.7.
  - Germany: 0.0 2; 0; 0.3; 1.5.
  - India: 0.4; -0.3; 0.8; 2.6.
  - Italy: 0.1; -0.2; 0.3; 1.1.
  - Japan: 0.19; -0.4; 0.3; 1.3.
  - UK: 0.02; 0; 0.4; 1.7.
  - USA: 0.05; 0; 0.4; 0.8.

### Macroeconomic and welfare outcomes
- Aggregate cost ranking:
  - Carbon pricing, regulation, and feebates achieve similar and generally small aggregate economic costs.
  - Feed-in subsidies are more costly due to higher taxation needs and rebound effects.
- GDP and employment:
  - Carbon pricing yields better outcomes for GDP, household income, and employment than other policies because it leaves most flexibility for emission reductions and allows revenue recycling (e.g., lower wage taxes).
  - Regulation and feebates perform almost as well and may be politically more feasible.
  - Feed-in subsidies cause higher GDP losses in almost all cases (with specific exceptions).
  - Employment effects are small across options; carbon pricing has the lowest employment cost and can increase employment in some cases (e.g., Japan) via labor tax reductions financed by carbon revenue.
- Consumption and welfare:
  - Ranking follows employment; feed-in subsidies are more costly for consumption and welfare but lower electricity prices partially offset lower incomes.
  - Welfare reported as “Hicksian equivalent variation in income” (percent deviation from baseline).

### Competitiveness and international spillovers
- Carbon leakages:
  - Total carbon leakage is close to zero in IMF-ENV simulations.
  - Sectoral leakage up to 7 percent in “Chemicals” and lower elsewhere.
  - Low leakage due to large share of global emissions covered by scenarios and weak international fossil fuel market channel (transport and housing not targeted).
- Energy security:
  - Both regulation and carbon taxes decrease fossil fuel imports; regulation leads to a larger decline in the value of fossil fuel imports.
  - Carbon taxes discourage coal more than oil and gas due to higher carbon intensity per energy unit.
- Asymmetric policy scenarios:
  - Two illustrative asymmetric scenarios show countries implementing carbon taxes face slightly higher losses in EITE market shares when other countries implement regulation or feed-in subsidies.
  - Feed-in subsidies implemented by some countries can worsen outcomes for carbon-taxing countries.
- Coalition size:
  - Losses in competitiveness decrease with larger coalition size; acting G7 plus India and China yields smaller losses than G7-only acting.

### Decarbonization of industrial and power sectors — carbon prices by country and fragmentation (2030, 2018 USD/t CO2)
- Uniform carbon Tax | Segmented carbon markets: Power | EITE | Fragmented carbon markets: Power | Pulp & paper | Nonmetallic mineral | Iron & Steel | Chemicals
  - Canada: 39 | 39 | 50 | 39 | 206 | 34 | 45 | 52
  - China: 13 | 13 | 9 | 13 | 42 | 2 | 34 | 29
  - France: 43 | 46 | 18 | 46 | 708 | 7 | 67 | 18
  - Germany: 45 | 42 | 48 | 42 | 329 | 8 | 166 | 31
  - Italy: 63 | 67 | 47 | 67 | 641 | 13 | 323 | 40
  - RESTEU: 63 | 64 | 11 | 64 | 498 | 4 | 23 | 16
  - UK: 67 | 62 | 34 | 62 | 198 | 16 | 167 | 16
  - India: 15 | 16 | 19 | 16 | 78 | 1 | 197 | 1
  - Japan: 38 | 38 | 42 | 38 | 356 | 2 | 49 | 138
  - USA: 17 | 18 | 30 | 18 | 75 | 7 | 43 | 46
- Findings:
  - Regulation generally causes higher economic cost than carbon pricing in EITE sectors.
  - China has highest GDP losses from decarbonization across policy types because EITE sectors account for around 15 percent of the economy in China versus 5 percent on average for G7 countries.
  - Regulation particularly costly in India and Japan due to sector-specific adjustment difficulties.
  - Linking carbon markets versus segmented markets is of secondary importance for aggregate costs.

### Planned policies scenario (selected findings)
- Modeled planned policies for G7, China, India, South Korea in electricity and EITE sectors using explicit carbon pricing where planned; coal phase-outs; renewable share targets; sector-specific emission intensity targets.
- Emissions outcomes in 2030:
  - Policies planned in Canada, EU countries, the UK and the US would reduce combined emissions of the power and EITE sectors by more than 30 percent relative to baseline.
  - In China, India and Japan emission reductions would be between 5 and 15 percent from baseline.
  - For all countries, almost all emission reductions come from the power sector.
  - In terms of total economy-wide emissions, reductions amount to between 15 and 30 percent for the most ambitious countries.
- Electricity prices and expenditures:
  - Countries with higher ambition tend to have higher increases in electricity prices, especially those using carbon tax.
  - Electricity expenditure increases much less than electricity prices; total expenditure for electricity increases by 4 percent or less in all acting countries.
- GDP and trade impacts:
  - GDP losses are below 0.6 percent of baseline GDP for all countries.
  - Trade share losses strongest for the EU; China and the rest of the world would gain competitiveness.

### Policy implications and recommendations
- Power sector:
  - Regulations and feebates are good options; GDP costs very close to carbon pricing and more contained effects on energy prices.
  - Feed-in subsidies reduce electricity prices but are costlier if used alone due to rebound effects and financing needs; combining feed-in subsidies with carbon pricing or regulation is more effective.
- EITE sectors:
  - Carbon pricing with broad sectoral coverage remains superior where rigidities and heterogeneous abatement costs exist.
  - Carbon pricing allocates reductions where abatement is cheapest and generates revenues to reduce distortionary taxes, keeping aggregate cost lower.
- Cross-border/cooperation:
  - Different policy types have different cross-border implications; carbon taxation is not necessarily more damaging to competitiveness.
  - Accounting for multiple policy forms and coordinating to limit competitiveness effects from asymmetric policies would facilitate coalition formation.

*Source: IMF Working Paper "Climate Policy Options: A Comparison of Economic Performance" (IMF-ENV model analysis).*

### 1. Introduction ........................................................................................................

### 1. Introduction

### Scope and objectives
- Uses a global computable general equilibrium model (IMF-ENV) to compare climate policies across major emitting sectors and countries.
- Geographic focus: G7 countries (plus Europe), China, and India.
- Sectoral focus: the power sector and energy-intensive and trade-exposed (EITE) industries.
- Policies compared:
  - Power sector: a carbon tax on electricity generation; a direct regulation on the fossil fuel share; a feed-in subsidy for solar and wind power generation (FIT, also referred to as feed-in subsidies); and a feebate system.
  - EITE industries: carbon pricing and regulation on the carbon emission intensity of the industry.
- Outcome variables analyzed include real GDP, investment, employment, household consumption, electricity prices, electricity supply, government revenues and spending, gross output, market shares of EITE industries, carbon leakage rates, and import bills of fossil fuels (as a measure of energy security).

### Rationale and framing
- Carbon pricing is described as the most cost-effective form of climate policy because it directly internalizes the externality of carbon emissions and uses market forces to identify the most effective measures (High-Level Commission on Carbon Prices 2017).
- Non-pricing policies matter in practice because:
  - They do not appear as a new tax and their costs to economic agents are less visible politically (Furceri, Ganslmeier, and Ostry 2021; Blanchard and Tirole 2021).
  - They can address bottlenecks or market imperfections that limit the efficiency of carbon pricing (examples: subsidies for insulating buildings; R&D subsidies).
- Translating diverse climate policies into carbon price equivalents enables comparability and facilitates international cooperation and assessment of cross-border spillovers.
- The paper provides a conversion of climate policies into a carbon price equivalent and compares performance of equivalent climate policies across several economic indicators.

### Key empirical findings (high-level)
- Power sector:
  - A carbon tax, a direct regulation on the fossil fuel share, and a feebate system have similar and small economic costs, below 0.2 percent of GDP for policies equivalent to a 20-percentage point decrease of the fossil fuel share.
  - Feed-in subsidies for solar and wind electricity generation cost more than the other options because the lower energy price causes a rebound effect in energy demand and the subsidy needs to be financed by taxes.
  - If electricity prices are politically salient, feed-in subsidies—which reduce prices—and regulations and feebates—which only increase them very moderately—are preferable alternatives to carbon pricing, although even carbon pricing increases electricity prices by less than 10 percent.
  - Carbon taxation allows for lowering labor income taxes (through revenue recycling), resulting in higher real income of households (the opposite effects of feed-in subsidies). These general equilibrium effects are important to consider.
- EITE industries:
  - Where technical substitution possibilities are limited, regulation can be significantly more costly than carbon pricing.
  - A carbon tax allocates emission reductions to where they are cheapest and generates revenue that can be used to reduce distortionary taxes (such as labor taxes), keeping aggregate economic cost lower and producing a more even distribution of economic costs across sectors.
  - Sector-specific regulation risks heterogeneous implicit carbon prices and heterogeneous marginal abatement costs; avoiding those larger costs requires detailed sectoral knowledge and raises risk of policy mistakes.
- Competitiveness and asymmetric policies:
  - Choice between carbon pricing and regulation in the power sector has little impact on competitiveness of EITE industries.
  - In EITE industries, carbon pricing better preserves overall competitiveness than hard-to-tailor regulations.
  - Feed-in subsidies and feebates in the power sector can help protect market shares of EITE industries relative to non-acting countries by keeping electricity prices lower, but can cause significant changes in market shares between acting countries due to different initial conditions in use of solar and wind technologies.
  - Simulations of mixed policy mixes across acting countries tend to confirm that carbon pricing covering multiple sectors would be a better way to protect overall competitiveness than regulations.
- Planned policies and aggregate outcomes:
  - The plans of Canada, the EU, the UK, and the US can be expected to reduce emissions by 10 to 30 percent below baseline by 2030.
  - These reductions come at a cost of no more than 0.6 percent of baseline GDP in 2030.
  - Energy expenditure tends to increase by less than energy costs due to energy efficiency gains.
  - Trade share losses for EITE industries are generally moderate, of no more than 0.2 percent, except for the EU, where they are about 0.6 percent.

### Contributions relative to literature
- Provides a systematic and quantified comparison of economic effects of different climate policies for a given emission reduction.
- Quantifies trade-offs among policy objectives: domestic macroeconomic outcomes, energy prices, and competitiveness.
- Places particular focus on the role of regulations in power and EITE industries and highlights how policy ranking depends on technological substitution possibilities and heterogeneity of abatement costs across sectors.
- Examines cross-border competitiveness effects and asymmetric policy mixes, including leakage, energy security, and coalition-size considerations.

### Methodology and structure
- Model: IMF-ENV, a dynamic and global CGE model with detailed sectoral representation and world trade.
- Scenarios: design includes conversion of non-pricing policies into carbon price equivalents and comparison across a range of ambition levels and policy mixes.
- Remainder of paper:
  - Section 2: introduces IMF-ENV, scenario design, theoretical considerations, and political economy.
  - Section 3: analyzes electricity sector policy designs.
  - Section 4: extends analysis to electricity and EITE sectors.
  - Section 5: analyzes international spillovers (carbon leakage rates, energy security, competitiveness under coalition-size and policy mixes).
  - Section 6: concludes.

*Source: 1. Introduction — IMF Working Paper "Climate Policy Options: A Comparison of Economic Performance" (IMF-ENV model analysis).*

### 2. The IMF-ENV model and scenario design

### 2. The IMF-ENV model and scenario design

### The model
- IMF-ENV is a global, dynamic, and sectoral CGE model built on the ENVISAGE model and the OECD ENV-Linkages Model.
- Model scope and capabilities:
  - Analyzes impacts of climate mitigation policies on emissions, macroeconomic variables, sectoral outcomes, and trade.
  - Neo-classical framework dealing only with real values and with almost perfect markets for commodities and production factors.
  - Detailed sectoral and trade representation; emissions are directly related to economic activities.
  - Vintage capital feature: new investment is re-allocable across activities until returns equalize; existing (“old”) capital stock is mostly fixed and cannot be reallocated across sectors without costs, implying lower short-term elasticities of substitution than long-term elasticities.
- Limitations:
  - Does not have heterogeneous households (distributional effects within countries cannot be analyzed).
  - Does not have endogenous technology (technology spillovers and endogenous “new technologies” such as carbon capture and storage or hydrogen cannot be modeled directly).
  - Does not include administrative and monitoring costs of policies.

### Scenario design
- Acting jurisdictions in illustrative results: nine countries (the G7 countries as well as China and India) and the EU.
- Two sets of scenarios:
  - Decarbonization of the power sector.
  - Deeper decarbonization of both power sectors and Energy Intensive and Trade Exposed (EITE) industries.
- Power-sector scenarios (four policies calibrated to achieve the same cumulative decrease in CO2 emissions from fossil fuel combustion in power generation):
  - Regulation on a clean energy standard:
    - Mandates a reduction in the share of fossil-based power by 20 percentage points relative to the baseline by 2030.
    - Exceptions: France and Canada reduce the fossil fuel share by respectively 7 and 10 percentage points only.
  - Carbon tax for power sector:
    - Gradually increasing carbon tax for electricity generation, with the level calibrated to achieve the same path of CO2 emission reductions as in the regulation scenario.
    - Provides a carbon price equivalent for the regulation scenario.
  - Feed-in-tariff for solar and wind power generation:
    - Producers of wind and solar receive a subsidy in USD per unit of electricity so they sell electricity above their unit cost of production.
    - Subsidy rate assumed the same for solar and wind and adjusted each period to match cumulative CO2 emissions as in the regulation policy.
  - Feebates:
    - System of fees and rebates across electricity generation types: generation that emits more (less) than a given CO2 per kWh target pays (receives) a fee (rebate).
    - The price of emission per kWh is adjusted each period to guarantee same emissions reductions as under the regulation policy.
    - Feebate system is balanced across electricity producers and neutral on public finance.
- Fiscal neutrality across power policies:
  - All policies designed to be budget neutral through changes in wage income tax rates (or VAT in a sensitivity analysis).
  - Feed-in subsidy financed by raising wage income taxes; revenue from carbon taxes used to reduce wage income taxes.
- EITE-sector scenarios:
  - Four EITE sectors considered: “Iron and Steel”, “Chemicals”, “Non-metallic minerals” and “Pulp and paper”.
  - Three combined “power and EITE sectors” scenarios:
    - Regulation for power and EITE sectors:
      - Power regulation identical to power regulation scenario above.
      - Regulation on the “direct” (scope 1) CO2 emission intensity for each individual EITE sector.
      - Mandatory regulations assume linear reductions, starting in 2022, of each EITE sectoral emission intensity.
      - Emission intensity designed to decline by 20 percent below the baseline level by 2030.
    - Uniform carbon tax on power and EITE sectors:
      - Power sector and EITE industries all face the same carbon tax (as in an Emission Trading Scheme with permit auctioning).
      - Level of CO2 tax adjusted each year so joint annual total CO2 emissions of power and EITE sectors match the regulation scenario.
    - Segmented carbon markets:
      - Two distinct carbon markets: one for the EITE sectors and one for the power sector, with different carbon taxes adjusted to match emissions of the regulation scenario.
      - Sensitivity analysis includes a “fragmented carbon market” where each EITE sector faces its own carbon tax to meet exactly the same sectoral CO2 emission reductions as in the regulation scenario.
  - Fiscal neutrality for EITE scenarios:
    - Wage income tax rates adjusted so policies are revenue neutral for the government.
  - Note on “non-ferrous metals”:
    - Generally considered energy intensive, but energy demand is mostly electricity and not fossil fuels; regulation on direct carbon intensity is not applied to this sector, but it is included in EITE-sector charts because it is electricity intensive and sensitive to electricity policies.

### Theoretical considerations on economic cost
- Both regulation and carbon pricing impose a permanent cost on the sector to which they are applied by inducing substitution away from emissions to other factors, leading to a more expensive input mix than the unregulated case.
- Relative cost drivers:
  - Carbon pricing:
    - Incentivizes all margins of adjustment and delivers a given emission reduction at least cost, especially when applied across multiple sectors with different substitution possibilities.
    - Allocates emissions reductions to sectors with greater substitution possibilities, reducing aggregate cost.
    - Imposes an additional visible cost because the tax is paid on remaining emissions; sector faces (i) a slightly more expensive mix of production factors and (ii) the carbon price on remaining emissions.
    - Revenues from carbon pricing can be recycled (e.g., to lower wage tax) partly offsetting carbon taxation costs.
  - Regulation:
    - Can be costlier than carbon pricing when it implies heterogeneous implicit carbon prices (heterogeneous marginal abatement costs) across emission sources.
    - Smart regulation requires detailed sector-specific knowledge and risks policy mistakes.
  - Feebates:
    - Share features with both regulation and carbon taxes: internal pricing signals reoptimize production factors, but the sector as a whole has no net external payments because fees and rebates net out.
    - Resulting production factor mix is more expensive than in the unregulated situation.
  - Feed-in subsidies:
    - Rebound effect: subsidies make renewable energy cheaper to consumers, lowering equilibrium energy price and increasing demand, so additional renewable energy only partially displaces fossil fuel energy.
    - Because of rebound and lack of fuel differentiation (no switch-from-coal-to-gas incentive), displacing fossil fuels via subsidies requires a large subsidy, causing a large cost to the government and higher total cost relative to direct-emission policies.
- Model omissions affecting cost assessment:
  - Absence of endogenous technological change: the model does not capture R&D feedbacks that could lower costs over time as input mixes change.
  - Absence of administrative and monitoring costs: cost estimates reflect only changes in the mix of production factors, taxes and subsidies, and their recycling or financing.

### Political economy
- Policy assessment requires more than aggregate GDP comparisons; political feasibility depends on additional variables.
- Two salient political-economy considerations:
  - Energy prices are highly visible and can trigger broad mobilization against reforms that raise them; policies that minimize economic losses may nevertheless cause higher energy prices.
  - Energy Intensive and Trade Exposed (EITE) industries may be disadvantaged relative to international competitors; while not a major consideration for the whole economy, EITE industries are politically influential.
- Consequently, policy comparisons include energy prices and market shares of EITE sectors in addition to aggregate GDP.

*Source: 2. The IMF-ENV model and scenario design (section text provided).*

### Section 3.4 we conclude with the effects on competitiveness, which have a considerable relevance for the

### wpiea2022242-print-pdf - Section 3.4 we conclude with the effects on competitiveness, which have a considerable relevance for the

### Policy instruments
- A similar environmental target translates into very different magnitudes of policy tools across countries.
- A regulation requiring a 20-percentage point decline in the share of fossil fuels translates into additional carbon prices that vary from 13 USD in China to 67 USD in the UK.
- Feed-in subsidies for wind and solar are in the range of 22 to 45 percent of the production cost, with highest values for France and Canada.
- Rebates paid to solar energy (in feebates) are all below 10 percent of production cost.
- The fee on coal (in feebates) is inversely proportional to the share of coal power in the electricity mix; examples from Table 1 (unit = percent of unit production cost or 2018 USD/t of CO2):
  - Canada: Economy-wide CO2 emission reduction -5.5; Additional carbon tax 39; Feed-in subsidies for wind and solar -45; Rebates for Solar power (in feebate) -4.2; Fees for Coal power (in feebate) 44.
  - China: -12; 13; -28; -8.8; 15.
  - France: -6.5; 43; -36; -1.6; 26.
  - Germany: -13.6; 45; -31; -6.3; 25.
  - India: -14.5; 15; -22; -6.3; 7.
  - Italy: -7.6; 63; -33; -4.2; 32.
  - Japan: -11.2; 38; -22; -4.1; 12.
  - UK: -10; 67; -26; -0.9; 21.
  - USA: -10; 17; -30; -3.3; 18.
- Note: The carbon tax reported is the additional price of CO2 relative to baseline needed to generate the same emissions for the power sector as under the “regulation” scenario. Feed-in subsidies present rates as difference from baseline level.

### The electricity sector
- Regulation (20 percentage point reduction in fossil fuel share) directly reduces fossil fuel share; carbon tax causes a lower reduction in fossil fuel share because it also induces fuel switching (notably coal to gas).
- Feed-in subsidies boost wind and solar specifically, sometimes suboptimally compared to other low-carbon options (e.g., hydropower, nuclear).
- Feebates produce an energy mix very similar to the carbon tax because both change relative prices by carbon intensity.
- Construction of additional natural gas capacity is inconsistent with net zero by 2050 due to long-lived infrastructure; carbon pricing implemented with a steadily increasing price path until 2050 would make large-scale switch to gas unattractive.
- Electricity price effects in 2030:
  - Carbon pricing increases electricity prices by less than 10 percent (except France), with increases between 3 and 8 percent for most countries; higher values in China, India, and Japan; lower values in the US and UK.
  - Regulation and feebates increase prices by much smaller amounts.
  - Feed-in subsidies reduce prices by 5 to 15 percent depending on the country.
- Policies that increase electricity prices decrease electricity supply and vice versa:
  - India and China show highest growth in electricity generation (percent deviation from 2021).
  - Feed-in subsidies increase electricity generation relative to BAU; carbon tax yields the lowest supply among scenarios considered.
- Policy scenarios here are limited to the electricity sector; economy-wide policies with electrification would increase electricity generation across options.

### Fiscal implications
- All policies are implemented revenue neutral with (real) government expenditures constant across scenarios.
- Carbon taxes generate government revenue that can be used to reduce other distortionary taxes (e.g., labor income taxes and VAT).
- Feed-in subsidies generate fiscal costs between 0.3 and 0.8 percent of GDP depending on country, requiring increases in other taxes (notably labor taxes).
- Even regulation and feebates can change tax bases and thus require tax rate adjustments to remain revenue neutral.
- Changes in other taxes are reflected in net household income, offsetting some electricity price effects on households.
- Carbon tax revenue and feed-in subsidy impacts from Table 2 (percent of GDP and percentage point changes):
  - Canada: Carbon tax revenue 0.02; Change in Labor Tax rate (carbon tax scenario) 0; Feed-in subsidy expenditures 0.7; Change in Labor Tax rate (feed-in subsidy scenario) 1.4.
  - China: 0.09; 1.7; 0.4; 3.3.
  - France: 0.01; 0.1; 0.4; 1.7.
  - Germany: 0.0 2; 0; 0.3; 1.5.
  - India: 0.4; -0.3; 0.8; 2.6.
  - Italy: 0.1; -0.2; 0.3; 1.1.
  - Japan: 0.19; -0.4; 0.3; 1.3.
  - UK: 0.02; 0; 0.4; 1.7.
  - USA: 0.05; 0; 0.4; 0.8.
- When electricity sectors have high emission intensity (e.g., India, Japan), relatively high carbon taxes (as percent of GDP) are required to achieve reductions; in some cases carbon tax-induced GDP losses can necessitate higher tax rates to keep budgets balanced (notably China).

### Macroeconomic implications
- Aggregate economic cost ranking:
  - Carbon pricing, regulation, and feebates achieve similar and generally small aggregate economic costs.
  - Feed-in subsidies are more costly due to requiring higher overall taxation and causing a rebound effect in energy demand.
- GDP, household income, and employment impacts:
  - Carbon pricing yields better outcomes for GDP, household income, and employment than other policies because it leaves most flexibility for emission reductions.
  - Regulation and feebates perform almost as well and are attractive if politically more feasible.
  - Feed-in subsidies cause higher GDP losses in almost all cases (exceptions noted for Germany under specific settings).
- Revenue recycling mode matters:
  - Recycling carbon tax revenues via wage-tax reductions versus VAT changes affects GDP and investment differently.
  - Implementing tax reductions through VAT instead of wage taxes causes a shift from consumption to investment in IMF-ENV due to myopic expectations; large VAT increases (feed-in subsidy scenario) lead households to increase savings relative to consumption.
- Investment and GDP effects in 2030 (percent deviation from baseline) vary by policy and recycling method (see Figure 5).
- Employment effects:
  - All policy options have small effects on employment.
  - Carbon pricing has the lowest employment cost; in Japan carbon pricing would increase employment (due to labor tax reductions financed by carbon revenue).
  - Feed-in subsidies have somewhat higher employment costs because they are financed through larger increases in wage taxes.
- Consumption and welfare:
  - Ranking for consumption and welfare generally follows employment ranking; feed-in subsidies are more costly for consumption and welfare but the difference is smaller than for employment because lower electricity prices under subsidies partially offset lower incomes.
  - Welfare reported as “Hicksian equivalent variation in income” (percent deviation from baseline).

### Competitiveness effects
- EITE (Energy Intensive and Trade Exposed) sectors:
  - Impacts on gross output depend on energy price direction and relative competitiveness across countries.
  - Electricity price changes are decisive for EITE industries’ outcomes.
- Market shares:
  - Climate policies mostly reduce market shares of EITE industries for countries implementing the policies, but effects are small (losses limited to 0.2 percentage points because electricity is only one component of production costs).
  - Market share losses are slightly larger under carbon tax, which increases electricity prices the most.
  - Exceptions:
    - USA gains market share under carbon tax due to greater use of low-cost gas.
    - France implements smaller policies and therefore behaves differently.
  - China experiences the largest market share losses across policy options because energy intensity of EITE sectors and the importance of EITE industries (value added share as percentage of GDP) are high.
- Producer prices and output:
  - Feed-in subsidies reduce producer prices for EITE sectors in most countries by lowering energy costs, resulting in lower output losses or even gains in market share for some acting countries.
  - However, subsidies must be financed (in scenarios via higher labor taxes), which burdens other sectors (notably services) causing those sectors to lose higher shares of output and trade share relative to carbon pricing.
  - Net effect: feed-in subsidies support EITE sectors at the expense of other sectors.

### Ambition level
- Ranking of policy options is broadly stable across ambition levels (20 percentage point vs 30 percentage point decline in fossil fuel share).
- Higher ambition (30 percentage points) causes slightly higher GDP and trade share losses (still well below 1 percent from baseline) and stronger electricity price changes.
- Carbon pricing generally causes a somewhat smaller loss in trade shares than regulation for the G7 as a whole; however, country-specific differences occur:
  - Canada, Germany, Italy, Japan: regulation can be slightly better.
  - EU as a group: regulation slightly better in the 20 percentage point scenario; carbon pricing slightly better in the 30 percentage point scenario.
- Overall: carbon pricing’s greater flexibility provides a modest advantage on average, though outcomes for carbon pricing and regulation are very similar.

*Source: IMF-ENV model.*

### 4. Decarbonization of industrial and power

### 4. Decarbonization of industrial and power sectors with alternative policies

### Scenario design and regulatory benchmark
- Under the regulation scenario, the emission intensity in four EITE sectors (“Iron and Steel”, “Chemicals”, “Non-metallic minerals” and “Pulp and paper”) is mandated to decline by 20 percent below the baseline level by 2030.
- Comparison of policies: (i) regulation mandating sectoral emission intensity declines, (ii) carbon pricing systems with three levels of segmentation: uniform carbon market (single carbon tax), segmented carbon markets (one tax for Power, one for EITE as a whole), and fragmented carbon markets (each EITE sector faces its own carbon price).
- Table 3 reports carbon prices required in 2030 (2018 USD/t CO2) by country and sector to achieve emission reductions equivalent to the regulation.

### Carbon prices in 2030 (2018 USD/t CO2) by country and market fragmentation (as reported in Table 3)
- Columns: Uniform carbon Tax | Segmented carbon markets: Power | EITE | Fragmented carbon markets: Power | Pulp & paper | Nonmetallic mineral | Iron & Steel | Chemicals
- Canada: 39 | 39 | 50 | 39 | 206 | 34 | 45 | 52
- China: 13 | 13 | 9 | 13 | 42 | 2 | 34 | 29
- France: 43 | 46 | 18 | 46 | 708 | 7 | 67 | 18
- Germany: 45 | 42 | 48 | 42 | 329 | 8 | 166 | 31
- Italy: 63 | 67 | 47 | 67 | 641 | 13 | 323 | 40
- RESTEU: 63 | 64 | 11 | 64 | 498 | 4 | 23 | 16
- UK: 67 | 62 | 34 | 62 | 198 | 16 | 167 | 16
- India: 15 | 16 | 19 | 16 | 78 | 1 | 197 | 1
- Japan: 38 | 38 | 42 | 38 | 356 | 2 | 49 | 138
- USA: 17 | 18 | 30 | 18 | 75 | 7 | 43 | 46

### 4.1 Macroeconomic implications — key findings
- Regulation generally causes higher economic cost than carbon pricing in the EITE sectors.
- Regulation causes higher GDP losses than a carbon tax in the EITE sectors in all countries (Figure 10).
- Rationale: some EITE sectors face extreme difficulty complying with uniform regulation; carbon taxes allow firms to pay the tax instead of undertaking costly adjustments, shifting abatement to sectors where it is cheaper.
- With a carbon tax, emissions reductions concentrate where abatement is cheaper, in particular in non-metallic minerals that embody a large part of CO2 process emissions.
- Carbon taxes reduce aggregate economic cost and lead to a more even distribution of economic costs across sectors.
- Linking carbon markets (uniform CO2 tax) versus having distinct CO2 taxes (segmented or sectoral taxes) is of secondary importance for aggregate costs.
- Across countries:
  - China has the highest GDP losses from decarbonization across all policy types.
  - EITE sectors account for around 15% of the economy in China versus 5% on average for G7 countries.
  - The carbon tax generates very moderate GDP losses for all other countries.
  - A switch to regulation would significantly increase the cost for India and Japan, driven by sector-specific adjustment difficulties (iron and steel in India; chemicals in Japan).
- Footnote on India (preserving original wording): "It should be noted that for India the impacts for the scenario sectoral carbon taxes are strong and opposite for GDP and employment. This is because sectoral taxes are very important for Iron (and pulp and paper) in India and are not sufficient to curb sufficiently emission. Then the distortion is important (hence the large GDP cost) but since carbon tax is high and emission still important for iron then total carbon revenues are twice the level in the case of uniform tax and then income tax is more reduced and employment larger."

### 4.2 Competitiveness effects — key findings
- EITE sectors suffer larger losses in competitiveness when climate policy applies directly to them (Figure 12).
- Losses in gross output and trade shares for EITE sectors are considerably larger when climate policy is implemented in both electricity and EITE sectors compared to policy applied only in electricity.
- Trade-share changes are driven strongly by the assumption that only the countries under consideration implement climate policy; the rest of the world (ROW) gains substantial market shares for EITE sectors at the expense of acting countries.
- Regulation is more damaging to competitiveness than carbon pricing, especially in Japan and India.
- Carbon taxes perform better because they smooth the burden of emission reduction across sub-sectors; regulation imposes heterogeneous and sometimes prohibitively large costs on specific EITE sub-sectors.

### 4.3 Ambition level — role of policy ambition for ranking of policies
- The analysis compares two ambition levels for EITE sectors: (i) base case — 20 percent decrease of sectoral emission intensity for each EITE sector, and (ii) more ambitious — 30 percent decrease. In both cases, the regulation on the power sector is the same as in the base policy case (i.e., a 20 percent decrease in fossil fuel power shares).
- The efficiency advantage of the carbon tax over regulation increases with ambition:
  - Higher ambition levels cause larger GDP losses and even larger losses in EITE trade shares under regulation.
  - Under a uniform carbon tax, the increase in cost when raising ambition is limited.
- For EITE sectors, marginal abatement costs increase dramatically with the ambition level, making the cost-smoothing property of carbon prices across EITE and Power sectors increasingly favorable.

*Source: IMF-ENV Model; content summarized from "4. Decarbonization of industrial and power sectors with alternative policies."*

### 5. International Spillovers

### 5. International Spillovers

### 5.1. Carbon Leakages
- Total carbon leakage is close to zero in IMF-ENV simulations.
- Primary reasons for low leakage:
  - Scenarios assume countries representing two thirds of global CO2 emissions and a large part of global output in the sector implement climate policy jointly.
  - The international fossil fuel market channel is weak because the scenarios do not directly involve large changes in oil demand (transportation and housing sectors are not targeted).
- Sectoral details:
  - In EITE sectors, leakage is at up to 7 percent in “Chemicals” and lower in all other sectors.
  - A common carbon tax identifies the cheapest abatement options across sectors, potentially concentrating abatement in some sectors.
  - Regulation forces equal reductions in emission intensity across sectors, which can impose higher costs and hence more leakage on sub-sectors with limited technical substitution possibilities.

### 5.2. Energy Security
- Both regulation and carbon taxes decrease fossil fuel imports.
- Regulation leads to a larger decline in the value of fossil fuel imports, helping increase energy security.
- Mechanisms and distinctions:
  - Carbon taxes discourage coal more than other fossil fuels because coal has a higher carbon intensity per unit of energy.
  - Regulation, as implemented here, does not distinguish between fossil fuel types and thus does not put an extra penalty on coal.
  - Changes in domestic demand directly affect imports because fossil fuel resources are unevenly distributed across countries.
  - Reduction in fossil fuel imports translates into higher energy security since low-carbon energy is mostly produced domestically.
- Empirical simulation findings:
  - Imports of fossil fuels decline in all acting countries relative to the baseline.
  - Declines in import volumes (in terms of oil equivalent) are similar across the two scenarios in most countries.
  - The value of imports declines more under regulation because oil and gas are more expensive than coal for the same energy content, and regulation tilts reduction toward oil and gas.

### 5.3. Diverse climate policies across countries
- Two illustrative “asymmetric policies” scenarios:
  - Scenario A: EU countries, the UK and Canada implement carbon taxes; US, Japan, India, and China implement regulation.
  - Scenario B: EU countries, the UK and Canada implement carbon taxes; US, Japan, India, and China implement feed-in subsidies in the power sector and regulation in EITE sectors.
- Power-sector-only results:
  - Countries implementing a carbon tax face slightly higher losses in market shares of EITE industries when other countries implement regulation rather than a carbon tax.
  - The US is much worse off with regulation than with a carbon tax because the carbon tax allowed substitution from coal to natural gas while regulation imposes a given reduction in the fossil fuel share; regulation causes the US to import more electricity from Canada, increasing Canada’s exports.
  - Losses for carbon-taxing countries are larger in the scenario where other countries implement feed-in subsidies.
- Power and EITE sectors combined:
  - Countries implementing a carbon tax are slightly better off when others switch to regulation; countries switching to regulation, especially India and Japan, have lower trade shares.
  - Feed-in subsidies in the power sector combined with regulation in EITE sectors partially offset negative effects of regulation but are still worse than carbon pricing.
- Coalition size and competitiveness:
  - Losses in competitiveness decrease with larger coalition size.
  - Comparing G7-only acting versus G7 plus India and China acting: losses are always smaller when the larger coalition acts because additional countries do not free-ride by taking over market share.

### 6. Sectoral climate policy (Implemented policies scenario)
- Scope and modeling:
  - Selected climate policies planned by G7 countries, China, India, and South Korea in electricity and EITE industrial sectors are modeled.
  - Policies modeled include: explicit carbon pricing where planned; coal power phase-out plans; renewable share targets (implemented as regulations and, for the US, also feed-in subsidies); sector-specific emission intensity targets for industry (implemented as a sector-specific carbon tax surcharge and, for the US, feebates).
  - The scenario does not assume carbon pricing for China, US, and India (they do not yet have national carbon pricing schemes implemented).
  - Carbon pricing revenues are assumed to be used to reduce labor income taxes; US feed-in subsidies are assumed to be paid by households with lump-sum tax.
  - The scenario is illustrative and relies on simplification and approximation due to the policy detail.
- Emissions outcomes in 2030:
  - Policies planned in Canada, EU countries, the UK and the US would reduce combined emissions of the power and EITE sectors by more than 30 percent relative to baseline levels.
  - In China, India and Japan emission reductions would be between 5 and 15 percent from baseline levels.
  - In the rest of the world, emission reductions would be minimal.
  - For all countries, almost all emission reductions would come from the power sector with only minor contributions from the EITE industries.
  - In terms of total economy-wide emissions, reductions amount to between 15 and 30 percent for the most ambitious countries.
- Electricity prices and expenditures:
  - Countries with higher ambition in emission reductions tend to have higher increases in electricity prices, especially those using the carbon tax.
  - Electricity expenditure increases much less than electricity prices because higher prices motivate energy efficiency gains and lower electricity consumption.
  - Total expenditure for electricity increases by 4 percent or less in all acting countries.
- GDP and trade impacts:
  - GDP losses are below 0.6 percent of baseline GDP for all countries.
  - Relative GDP losses generally correlate with the relative strength of emission reductions.
  - China, India, and the rest of the world experience non-negligible GDP losses reflecting reduced demand from acting countries.
  - Losses in trade shares are expected to be strongest for the EU, while China and the rest of the world would benefit from increased competitiveness.

### 7. Conclusion (policy implications and comparative findings)
- Alternative policies to carbon pricing:
  - Regulations and feebates are good options in the power sector; they have GDP costs very close to carbon pricing and more contained effects on energy prices.
  - A feed-in subsidy performs well on energy prices (it reduces them) but would be much costlier if used alone because it incentivizes energy consumption, does not limit fossil fuel use, and needs financing with higher taxes; combining feed-in subsidies with carbon pricing or regulation is more effective.
- EITE sectors:
  - In sectors with more rigidities and heterogeneous abatement costs, carbon pricing with broad sectoral coverage remains superior.
  - Carbon pricing allocates emissions reductions where abatement is cheapest and generates revenues to reduce distortionary taxes, keeping aggregate cost lower.
- Cross-border and coalition design:
  - Alternative policies have different cross-border implications, but carbon taxation is not necessarily more damaging to competitiveness.
  - Feed-in subsidies in the power sector can change market shares of EITE industries by lowering electricity prices, but carbon taxes can be more effective and flexible and provide revenue recycling benefits.
  - Different types of climate policy could be incorporated in an international coalition design; accounting for multiple policy forms and coordinating to limit competitiveness effects from asymmetric policies would facilitate coalition formation.

*Source: IMF Working Paper — Climate Policy Options: A Comparison of Economic Performance, Section 5: International Spillovers.*

### Annex 1. Representation of the power sector in

### Annex 1. Representation of the power sector in IMF-ENV

### Model representation of electricity supply
- Representative electricity provider in region r chooses optimal mix across technologies a = {solar, hydro, nuclear, wind, other renewables, oil power, gas power, coal power} by maximizing:
  - Max X_ely . P_ely − X_TD . P_TD − ∑_a X(a) . p(a)
  - subject to X_ely < F(X_TD ; X_pow(X(a1),...,X(an)))
- Electricity supply X_ely is a combination of:
  - X_TD: demand for electricity transmission and distribution services
  - X_pow: demand for power, where electricity generation X_pow is the combination of generation from primary energy sources X(a)
- p(a) is the production cost by technology in USD per kilowatt hour.
- The production function F(.) is a nested CES function of electricity generated by the various primary energy sources a.

### Implementing Power Policies

- Regulation on a Clean Energy Standard
  - The regulation imposes a minimum share Φ of electricity generated from low-carbon (non-fossil) sources in total electricity generation.
  - Φ grows from the policy start year (here 2022) until it reaches a given target in 2030.
  - Constraint in optimization:
    - Φ . X_pow < [X(solar) + X(wind) + X(hydro) + X(nuclear) + X(other)]

- Feed-in tariff policy
  - Producers of wind and solar receive a subsidy in USD per unit of electricity so they sell electricity above unit cost.
  - Representative provider pays only p(a) * (1 − subs) for solar and wind.
  - Subsidy rate is the same for solar and wind.
  - The subsidy is adjusted each period so that the path of CO2 emissions from the power sector matches that under the regulation policy.

- Carbon Tax
  - Each electricity producer pays a tax in USD for each unit of CO2 emissions from fossil fuel combustion.
  - The tax applies only if fossil fuels are burned; renewable and nuclear producers do not pay it.
  - Because carbon content differs across coal, oil and gas, the extra cost per unit of electricity differs by fuel.

- Feebates
  - Generators emitting more than a CO2 per kWh target pay a fee; those emitting less receive a rebate.
  - Price adjustment: p(a) + p̃ (CO2(a) X(a) − CO2_X)
  - CO2_X = ∑_a CO2(a) / ∑_a X(a) is the target CO2 per kWh and p̃ is the carbon price in USD.
  - In simulations p̃ is adjusted by period and country so CO2 emissions path equals that under the regulation constraint.
  - The feebate system is balanced and revenue-neutral for public finances.

### Implementing regulations in energy-intensive industries (EITE)
- Regulation implemented as additional constraint on θ_s, defined as CO2 intensity (total CO2 emissions to gross output) for each sector s.
- Firms maximize profit subject to production constraint F(·) and CO2 intensity constraint:
  - Max ∑_v X_s,v · P_s,v − ∑_i x_s(i) · p_s(i),v − CarbonPrice · procCO2,s − ∑_v pk_s,v · k_s,v − ∑_v w · L_s,v
  - Subject to X_s,v < F_s,v(x_s(i),...,x_s(n), k_s,v, L_s,v, procCO2,s)
  - procCO2,s + ∑_f x_s(f) · c_s(f) = CO2,s < θ_s · ∑_v X_s,v
- Variables and parameters:
  - X_s,v: gross output of sector s for vintage v
  - x_s(i): demand of intermediate input i
  - k_s,v: demand for capital
  - L_s,v: demand for labor
  - P_s, p_s(i), pk_s,v, w: respective prices
  - procCO2,s: process CO2 emissions
  - c(f): fixed coefficient of emissions for fossil fuel f
- Total CO2 emissions from sector s = process CO2 emissions + CO2 from fossil fuel combustion.

### Planned policies (selected entries from Table 4)
- Table 4 covers explicit carbon pricing policies and sector-specific targets for G7 Countries, China, India, and Korea (April 2022, 2030 prices, US $/ton).
- Selected country entries (Instrument/coverage; Power generation shares targets, % (year); Renewables; Coal (year); Sector specific notes):
  - Canada
    - Carbon tax/ETS for power, industry, transport, buildings (36, 140)
    - 90 (2030) 0 (2030)
  - China
    - ETS for electricity to be expanded to industry (7, 7)
    - 80 (2060)
    - Peak aluminum and steel CO2 emissions by 2025, and reduce them 40 and 30 percent, respectively from that peak by 2040.
  - France
    - EU ETS for power/industry (100, 140), domestic tax for buildings/transport (87, 87)
    - 40 (2030) 0 (2022)
    - Reduce (all GHG) emissions from industry 37 percent by 2030 relative to 2019.
  - Germany
    - EU ETS for power/industry (100, 140), domestic ETS for buildings/transport (34, 60)
    - 80 (2030) 0 (2030)
    - Reduce CO2 emissions 49-51 percent below 1990 levels by 2030
  - India
    - 50 (2030)
  - Italy
    - EU ETS for power/industry(100, 140)
    - 55 (2030) 0 (2025)
  - Japan
    - Carbon tax for all emissions (3, 3)
    - 38 (2030) 19 (2030)
    - Reduce industrial energy consumption 1 percent a year.
  - Korea
    - ETS for power/industry/buildings (15, 15)
    - 30 (2030) 0 (2050)
  - UK
    - ETS for power/industry (69, 130)
    - 100 (2035) 0 (2024)
    - Reduce CO2 emissions 67 percent below 2018 levels by 2035.
  - US
    - 60 (2030) 5 (2030)
    - Reduction of industry CO2 emissions by 11 percent below 2005 levels by 2030 following (Larsen et al. 2022)
    - Notes: US electricity sector modeled as renewable energy target of 60 percent for the electricity mix in 2030, achieved via regulation, phase-out of coal to 4.5 percent of total power generation in 2030, and a subsidy on output for wind and solar. In manufacturing, policies are modeled as feebates. Total subsidies for 2022 to 2030 are 164.4 USD billions financed through lump-sum taxes.

*IMF Working Paper: Climate Policy Options: A Comparison of Economic Performance, Working Paper No. WP/22/242*

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_Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022242-print-pdf.pdf_