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### Macroeconomic importance of climate change
- Climate change is macroeconomically critical due to both its impacts and the major structural adjustments required to address it (IMF 2021).
- Physical damages:
  - amplify volatility, weaken productivity, and heighten debt and balance-of-payments vulnerabilities (Mitra and others 2025).
  - could trigger multiple climate ‘tipping points’ with potentially disastrous macroeconomic implications if warming exceeds 1.5°C (McKay and others 2022).
- Transition risks from decarbonization include asset stranding, fiscal stress, and inflationary pressures, creating potential trade-offs between price stability, growth, and financial stability.
- With effective macroeconomic policies, decarbonization can enhance national energy security, improve energy efficiency, and yield significant national welfare benefits (Parry and others, forthcoming).
- The IMF’s role: advising members, facilitating coordination, and conducting multilateral surveillance on climate mitigation.

### Ambition and implementation gaps
- Paris Agreement goal: limit global temperature rise to ‘well below’ 2°C, ideally no more than 1.5°C.
- Required emissions cuts by 2035 versus 2019 levels to limit warming to well below 2°C:
  - cut greenhouse gas (GHG) emissions by 30 to 45 percent by 2035 versus 2019 levels.
- Current trajectories and carbon price gaps:
  - Even if current NDCs were achieved, they would not achieve the Paris temperature goals; the UN Secretary-General warned that passing 1.5°C is now inevitable.
  - Global carbon price signals (IMF staff CPAT calculations):
    - current global carbon price: $5 (per tonne CO2e)
    - ~$75 needed for 2°C peak (per tonne CO2e)
    - >$200 needed for 1.7°C peak (per tonne CO2e)
    - ~$125 needed for 1.85°C peak (per tonne CO2e)

### Key projections, historical context, and temperature trajectory
- Data updates: latest set of NDCs incorporated (as of October 2025).
- Historical and projected emissions:
  - CO2 emissions rose from about 15 billion tonnes in 1970 to about 39 billion tonnes in 2024.
  - Total GHGs rose from 24 billion tonnes of CO2e in 1970 to 55 billion tonnes of CO2e in 2024.
  - Low, lower-middle, and middle income countries’ share in CO2 emissions grew from 31 percent in 1970 to 69 percent of annual emissions in 2024; their share in historical emissions remains at just over half.
- Temperature indicators:
  - Last year (2024), average temperatures were 1.55°C above preindustrial (1850-1900) averages.
  - Using a 5-year average, global temperatures are 1.42°C above preindustrial levels and, if the current trajectory continues, would pass 1.5°C around 2027.
  - The past ten years 2014-2024 were the warmest years on record.

### Contributions and analytical tools
- The Paper provides:
  1. the authors’ annual analysis of countries’ climate mitigation ambition and fiscal policies supporting implementation;
  2. illustrative options for aligning 2035 emissions targets with global temperature goals; and
  3. analysis of the energy security implications of decarbonization.
- Modeling tool: IMF-World Bank Climate Policy Assessment Tool (CPAT); analysis also references GMMET and other models.

### Key messages from the analysis
- Despite NDC updates, the gap between current country ambition and Paris Agreement–consistent emissions remains large.
- Required global GHG emissions reductions by 2035 versus 2019 to align with peak temperature targets:
  - 1.85ºC peak → 30 percent cut
  - 1.7ºC peak → 45 percent cut
- Based on targets submitted so far, Paris Agreement members appear to be targeting just a 7 percent cut by 2035.
- Business-as-usual (BAU): global emissions projected to rise by 9 percent.
- Carbon-pricing pathways to get emissions on track by 2035:
  - global average carbon price rising to $75 or $125 per tonne CO2e would get GHG emissions on track to a peak of 1.85°C to 2°C (more stringent prices required for lower temperatures).
  - current global average explicit carbon price is $5 per tonne.

### Ambition and implementation gaps in NDCs and net-zero targets
- CPAT coverage and NDC status (as of 11 Nov 2025):
  - 112 countries covering about 71 percent of global emissions have been announced or submitted;
  - 13 countries representing 36 percent of global emissions have announced new targets but are yet to formally submit them.
- If NDCs submitted or announced to date were achieved, GHGs would fall by about 7 percent from 2019 levels by 2035.
- BAU projections imply global emissions rising by 9 percent.
- Distribution of 2035 NDC ambition by income group (targets expressed as percent reduction in GHGs versus BAU):
  - High-income countries (HICs, excluding the US): targeting 25 and 37 percent cut versus 2030 and 2035 BAU, respectively.
  - Upper-middle-income countries (UMICs): targeting cuts of 16 and 11 percent, respectively.
  - Lower-middle-income (LMICs) and low-income countries (LICs): targeting cuts of 9 and 16 percent, respectively.
- Net-zero commitments:
  - 138 countries, accounting for about 69 percent of 2020 GHG emissions, have committed to net zero midcentury.
  - Only 11 percentage points of these commitments are enshrined in law.
  - 31 percent of current global emissions are not covered by a net-zero target.
  - With current targets, the world would not achieve net-zero at any point this century; about 10 billion tonnes of residual emissions per year to the end of the century (illustrative).

### Property rights, allocation, and illustrative 2035 targets
- A commonly agreed global peak temperature goal would help identify the remaining global carbon budget and clarify a global net-zero date (assuming linear emissions pathways):
  - 1.7°C → net-zero around 2045
  - 1.85°C → net-zero around 2055
  - 2.0°C → net-zero around 2065
- Illustrative 2035 GHG cuts versus 2019:
  - 1.7°C peak → 47 percent cut
  - 1.85°C peak → 30 percent cut
  - 2°C peak → 20 percent cut
- Distributional gaps (2035 illustrative targets versus current national 2035 targets) by income group:
  - 2°C peak: HICs aligned, UMICs 28 ppts away, LIC/LMICs 4 ppts away.
  - 1.85°C peak: HICs 4 ppts away, UMICs 35 ppts away, LIC/LMICs 19 ppts away.
  - 1.7°C peak: no income group aligned.

### Energy security, electrification, and technology
- Electrification and decarbonization improve energy efficiency and energy security; they require major structural changes in energy systems.
- Electrification reduces primary energy needs due to conversion efficiency gains; full electrification of global road transport could cut total energy use by between 40 to 60 percent.
- VRE (solar PV and onshore wind) cost declines and growth:
  - Solar PV and onshore wind costs declined by about 80 to 90 percent since 2010.
  - In 2024, solar PV projects were on average 41 percent cheaper than the lowest-cost fossil fuel alternatives; onshore wind 53 percent cheaper.
  - In 2024 lithium-ion battery costs fell by 20 percent in a single year.
  - Among G20, renewables grew from 32 percent in 2022 to 37 percent in 2024 as a share of electricity supplied; globally, renewables accounted for 93 percent of total capacity expansion in 2024.
- 1.85°C scenario (with carbon pricing) electricity shares:
  - renewables rise from about 20 percent of total electricity generation in 2022 to about 60 percent by 2030 and 71 percent by 2040.
- Grid stability and complementary investments required:
  - short- and long-term storage (batteries, compressed air, pumped hydro), demand management, green hydrogen, advanced grid technologies, transmission infrastructure.
  - Examples: Lithuania and Denmark have achieved VRE shares exceeding 60 percent without stability issues when complemented by investments.
- Energy security dimensions: availability, accessibility, affordability, sustainability, and resilience.
- Decarbonization effects by country type:
  - Fossil-fuel importers benefit from improved current account balances and lower exposure to international fuel prices.
  - Fossil-fuel exporters face large revenue declines under accelerated transition scenarios.

### Fiscal and macroeconomic implications, carbon pricing, and revenue
- Mitigation costs and welfare:
  - If countries implement targets in least-cost ways, mitigation costs for the 1.85°C scenario are about 0.7 percent of GDP for the G20 as a whole.
  - Mitigation costs are annualized costs of switching to cleaner but more expensive inputs and technologies, net of savings from lower lifetime energy costs and behavioral responses.
  - Domestic environmental co-benefits can exceed mitigation costs in many emerging economies, implying net domestic welfare gains before counting global climate benefits.
- Carbon pricing and inflation:
  - Carbon pricing is the most effective single policy tool but can have near-term inflationary impacts.
  - GMMET simulations: carbon price rising to $50 per tonne for China, Euro Area, US and rest of the world adds around 0.05-0.2 percentage points to annual inflation in year 1, declining thereafter.
  - Example scenario (Figure 17): carbon price starts at $20 per tonne in 2025, rising to $50 in 2030, and is flat thereafter; 70 percent of revenue used for labor income tax reductions and 30 percent for household transfers.
- Revenue effects and base erosion:
  - Fuel tax base erosion typically causes revenue losses of around 0.2 percent of GDP or less.
  - Losses to revenue from fossil fuel production are typically small but exceed one percent of GDP for fossil fuel dependent countries.
  - Carbon pricing under scenarios can produce net revenue gains or losses across countries depending on base erosion and fossil production changes.
- Fiscal instruments for VRE integration:
  - Pricing mechanisms, direct incentives, targeted public investments; instruments include Feed-in Tariffs (FITs) and Contracts-for-Difference (CfDs); revenue-neutral “feebates” as an option.
  - Many developing countries face high cost of capital in the power sector; addressing economy-wide borrowing costs and sector-specific issues helps unlock low-carbon investment.

### Risks to fuel-exporting countries and diversification strategies
- Under a 1.85°C peak scenario, fuel-exporting countries face large revenue declines of over 3 percent of GDP per year by 2035 compared with BAU (examples include Libya, Kuwait, Qatar, Congo).
- In many countries, explicit fossil fuel subsidies in 2024 exceed projected revenue losses from a 1.85°C scenario in 2035 in 10 out of 14 countries illustrated.
- Policy responses for vulnerable exporters:
  - Economic and fiscal diversification.
  - Gradual removal of explicit fossil fuel subsidies and use revenues for public investment, reductions in distortionary taxes, and mitigation for vulnerable households and firms.
  - Bilateral or bloc-level arrangements: advanced importers could preferentially purchase fuels from vulnerable exporters at prices above market rates in exchange for accelerated diversification and reform.
  - Structural reforms to reduce energy and emissions intensity of output.
- Box 2 revenue diversification elements:
  - Shift fiscal regimes (production-based to profit-based taxes), build fiscal buffers (sovereign wealth funds), strengthen financial-sector resilience, implement pro-growth reforms, enable public sector efficiency, promote economic and vertical diversification, target green technologies (e.g., repurposing export infrastructure for green hydrogen).

### Overshoot, removals, negative emissions technologies (NETs), and intertemporal tradeoffs
- Overshoot likelihood and minimization:
  - Passing 1.5°C before potentially returning via negative global emissions (‘overshoot’) appears inevitable under current trajectories.
  - Minimizing magnitude and duration of overshoot entails reaching global net-zero sooner and undertaking rapid CO2 removals.
- Economic and physical constraints of NETs (Box 1 highlights):
  - If net-zero is achieved as late as 2070, extraction needs could reach up to 45 billion tonnes per year in the 2080s (more than peak annual emissions, currently 36 billion in 2024).
  - DAC estimated costs: $90 to $600 per tonne of CO2.
  - Illustrative peak removals: 11, 20, and 36 billion tonnes of CO2 per year.
  - Assuming current technologies and a flat marginal cost curve, peak removal costs range $1 to $21 trillion per year (about 0.9 to 19 percent of 2024 global GDP).
  - Median geological sequestration capacity: 1,460 billion tonnes of CO2.
  - Cumulative extraction needs assuming net-zero in 2045, 2055, or 2065: 325, 550 and 750 billion tonnes of CO2, respectively.
  - DAC energy and thermodynamic limits: at ~425 ppm CO2, DAC would need to filter 1 million molecules of air to extract 425 molecules of CO2.
- Asymmetry and timing:
  - The climate system may be asymmetric: one tonne emitted may add more to temperatures than one tonne removed reduces temperatures (Zickfeld and others 2021).
  - CO2 emissions have a fast and near-permanent impact on temperatures, with most of the increase occurring within a year of emission.
  - The year of net-zero corresponds approximately to the year of peak warming; example mappings:
    - Net-zero by 2045 → peak warming roughly around that year of 1.65°C.
    - Net-zero by 2065 → peak warming around 2.0°C (i.e., not “well below 2.0°C”).
  - Assuming current emissions targets for 2030, 2035 and net-zero are met, the temperature trajectory would pass 1.5°C this decade, 2°C by 2050, and 2.5°C by 2100.

### Mitigation costs, co-benefits, and fiscal implications (selected figures)
- Peak annual global emissions in 2024: 36 billion (tonnes CO2).
- Potential peak extraction need if net-zero delayed to 2070: up to 45 billion tonnes per year in the 2080s.
- DAC cost estimates: $90 to $600 per tonne of CO2.
- Illustrative peak removal scenarios: 11, 20, and 36 billion tonnes of CO2 per year.
- Estimated peak negative-emissions costs for those scenarios: $1 to $21 trillion per year (about 0.9 to 19 percent of 2024 global GDP).
- Current global CO2 atmospheric concentration: around 425 parts per million.
- Median geological sequestration capacity estimate: 1,460 billion tonnes of CO2.
- Cumulative extraction needs in Figure 5 scenarios (net-zero in 2045, 2055, 2065): 325, 550 and 750 billion tonnes of CO2, respectively.
- Illustrative 2035 GHG cuts vs 2019: 47 percent (1.7°C), 30 percent (1.85°C), 20 percent (2°C).
- Mitigation costs under 1.85°C: about 0.7 percent of GDP for the G20.

### Policy implications and coordination priorities
- Closing the ambition gap (NDCs vs. Paris goals) and implementation gap (current carbon prices vs. required carbon prices) is necessary to align global emissions with temperature targets.
- Achieving illustrative emissions targets for 1.7°C, 1.85°C, or 2°C requires effective macroeconomic policy packages; costs appear manageable and several developing countries would gain significant domestic welfare co-benefits.
- Critical policy priorities:
  - Implement cost-effective carbon pricing complemented by revenue recycling (e.g., labor tax reductions, household transfers).
  - Invest in grid infrastructure, storage, transmission interconnections, and permitting reform.
  - Design measures to assist vulnerable groups and fossil-exporting economies (diversification, fiscal buffers, sovereign wealth funds).
  - Pursue international coordination mechanisms (e.g., international carbon price floor) to limit leakage and competitiveness concerns.
  - Clarify global peak temperature goals and corresponding carbon budgets to guide property-rights allocation and equitable burden sharing.

*Source: IMF Working Papers — Cutting Emissions, Securing Energy: A Macroeconomic Assessment for COP30 (content as provided).*

### Executive Summary ......................................................................................................

### Executive Summary

### Macroeconomic importance of climate change
- Climate change is macroeconomically critical due to both its impacts and the major structural adjustments required to address it (IMF 2021).
- Physical damages from climate change:
  - amplify volatility, weaken productivity, and heighten debt and balance-of-payments vulnerabilities (Mitra and others 2025).
  - could trigger multiple climate ‘tipping points’ with potentially disastrous macroeconomic implications if warming exceeds 1.5°C (McKay and others 2022).
- Transition risks from decarbonization include asset stranding, fiscal stress, and inflationary pressures, creating potential trade-offs between price stability, growth, and financial stability.
- With effective macroeconomic policies, decarbonization can enhance national energy security, improve energy efficiency, and yield significant national welfare benefits (Parry and others, forthcoming).
- Climate mitigation is a global policy challenge under the IMF’s mandate of multilateral surveillance; the IMF has an important role in advising members and facilitating coordination.

### Ambition and implementation gaps
- The Paris Agreement goal: limit global temperature rise to ‘well below’ 2°C, ideally no more than 1.5°C, compared with preindustrial times.
- Required emissions cuts to limit warming to well below 2°C:
  - cut greenhouse gas (GHG) emissions by 30 to 45 percent by 2035 versus 2019 levels.
- Current trajectories:
  - Even if current targets in nationally determined contributions (NDCs) were achieved, they would not achieve the Paris Agreement’s temperature goals.
  - The United Nations Secretary-General warned that passing 1.5°C is now inevitable.
- Global carbon price signals (Panel 2, Figure 1) — exact values from IMF staff calculations using CPAT:
  - current global carbon price: $5 (per tonne CO2e)
  - ~$75 needed for 2°C peak (per tonne CO2e)
  - >$200 needed for 1.7°C peak (per tonne CO2e)
  - ~$125 needed for 1.85°C peak (per tonne CO2e)

### Key projections and historical context
- The Paper updates data sources and incorporates the latest set of NDCs (as of October 2025).
- Historical and projected emissions are tracked across income groups and regions (Figures referenced include BAU and NDC pathways).
- The Paper outlines that limiting warming consistent with Paris goals entails major structural changes across economies, especially in energy.

### Contributions of this Working Paper
- Provides:
  1. the authors’ annual analysis of countries’ climate mitigation ambition and fiscal policies supporting implementation;
  2. illustrative options for aligning 2035 emissions targets with global temperature goals; and
  3. analysis of the energy security implications of decarbonization.
- Builds on earlier IMF assessments (Black and others 2021, 2022a, 2023c, 2024) by:
  - updating data sources;
  - incorporating the latest set of NDCs (as of October 2025);
  - updating illustrative options for getting global emissions on track; and
  - discussing the ramifications of overshooting past the 1.5ºC long-term goal.
- Uses the IMF-World Bank Climate Policy Assessment Tool (CPAT).

### Implications for policy and coordination
- Achieving the required emissions reductions will involve large structural adjustments, particularly in energy systems.
- Closing both the ambition gap (NDCs vs. Paris temperature goals) and the implementation gap (current carbon prices vs. required carbon prices) is necessary to align global emissions with temperature targets.
- The IMF’s role includes advising on macroeconomic policies to manage transition risks and facilitating international coordination to meet global mitigation goals.

*Source: Executive Summary, IMF Working Paper — Cutting Emissions, Securing Energy: A Macroeconomic Assessment for COP30.*

### Annex I and Black and others 2023a), which is a model unique in allowing for comprehensive assessments of

### wpiea2025245-source-pdf - Annex I and Black and others 2023a), which is a model unique in allowing for comprehensive assessments of

### Key messages from the analysis
- Despite recent updates to NDCs, the gap between current country ambition and the emissions goals implied by the Paris Agreement remains large.
- Total global GHG emissions reductions of 30 or 45 percent below 2019 levels are needed by 2035 to be in line with limiting peak warming to 1.85ºC or 1.7ºC, respectively.
- Based on targets submitted so far, Paris Agreement members appear to be targeting just a 7 percent cut.
- In a business-as-usual (BAU) scenario, with no strengthening of mitigation policies, global emissions are projected to rise by 9 percent.
- Measures equivalent to a global average carbon price rising to $75 or $125 per tonne of CO2e by 2035 would get GHG emissions on track to a peak of 1.85°C to 2°C (more for lower temperatures). The current global average explicit carbon price is $5 per tonne.
- Global temperatures are highly likely to ‘overshoot’ 1.5°C this decade; minimizing overshoot requires (i) reaching global ‘net-zero’ emissions as early as possible; (ii) thereafter, a long period of significant negative global emissions with costly and uncertain implications.

### Historical and projected emissions and temperatures
- CO2 emissions rose from about 15 billion tonnes in 1970 to about 39 billion tonnes in 2024.
- Total GHGs rose from 24 billion tonnes of CO2e in 1970 to 55 billion tonnes of CO2e in 2024.
- Low, lower-middle, and middle income countries’ share in CO2 emissions grew from 31 percent in 1970 to 69 percent of annual emissions in 2024, while their share in historical emissions remains at just over half.
- Last year (2024), average temperatures were 1.55°C above preindustrial (1850-1900) averages.
- Using a 5-year average, global temperatures are 1.42°C above preindustrial levels and, if the current trajectory continues, would pass 1.5°C around 2027.
- The past ten years 2014-2024 were the warmest years on record.

### Ambition and implementation gaps in NDCs and net-zero targets
- The IMF-World Bank Climate Policy Assessment Tool (CPAT) enables quantification and comparison of mitigation ambition for over 180 countries.
- As of 11 Nov 2025, 112 countries covering about 71 percent of global emissions have been announced or submitted; 13 countries representing 36 percent of global emissions have announced new targets but are yet to formally submit them.
- If NDCs submitted or announced to date were achieved, GHGs would fall by about 7 percent from 2019 levels by 2035.
- BAU projections imply global emissions rising by 9 percent.
- Distribution of 2035 NDC ambition by income group (targets expressed as percent reduction in GHGs versus BAU):
  - High-income countries (HICs, excluding the US) are targeting a 25 and 37 percent cut versus 2030 and 2035 BAU, respectively.
  - Upper-middle-income countries (UMICs) are targeting cuts of 16 and 11 percent, respectively.
  - Lower-middle-income (LMICs) and low-income countries (LICs) are targeting cuts of 9 and 16 percent, respectively.
- Per capita 2035 targets example: the EU is targeting about 3.2 tonnes CO2e per capita per year by 2035.
- Net-zero commitments:
  - 138 countries, accounting for about 69 percent of 2020 GHG emissions, have committed to net zero emissions midcentury.
  - Only 11 percentage points of these commitments are enshrined in law; most are in policy documents or political pledges.
  - 31 percent of current global emissions are not covered by a net-zero target.
  - With current targets, the world would not achieve net-zero at any point this century, with about 10 billion tonnes of residual emissions per year to the end of the century (illustrative trajectory assuming targets met).

### Macroeconomic and policy implications
- Every tenth of a degree beyond 1.5°C raises adaptation costs, climate risks, and macroeconomic risks.
- Ambiguity in the Paris Agreement’s long-term target (“well below 2 C”, ideally 1.5 C) complicates economic planning and hinders negotiation and allocation of global carbon budgets and property rights.
- A commonly agreed global peak temperature goal would help:
  - Identify the remaining global carbon budget (property rights specification).
  - Clarify the global net-zero date: assuming a linear emissions pathway, 1.7°C, 1.85°C, or 2.0°C would correspond to net-zero years of around 2045, 2055 and 2065, respectively.
- Agreeing on 2035 targets (property rights allocation) while respecting common but differentiated responsibilities could set the world on a path to limiting peak global temperatures.
- Achieving illustrative emissions targets for 1.7°C, 1.85°C, or 2°C requires effective macroeconomic policy packages; costs appear manageable and several developing countries would gain significant domestic welfare co-benefits.

### Energy security, electrification, and technology
- Accelerating adoption of domestic energy sources such as renewables contributes to energy security, long-term macroeconomic benefits, and emissions reductions.
- Sudden shocks to fossil fuel supply chains have driven price volatility leading to balance of payments crises, including debt crises, currency depreciation, and/or financial crises.
- Electrification and decarbonization improve energy efficiency: technologies such as electric vehicles, variable renewables and heat pumps deliver energy services more efficiently than conventional fuel combustion.
- Electrification requires much less primary energy than current fossil-fuel based systems due to improvements in conversion efficiency.
- Maximizing decarbonization benefits while minimizing risks requires optimal policy designs and international coordination—an international carbon price floor (ICPF) is an example.
- Critical infrastructure and technology priorities include:
  - Investments in batteries and long-term electricity storage.
  - New or upgraded transmission infrastructure and interconnections among countries’ grids to bolster electricity supply stability.
  - Comprehensive mitigation instruments, technology policies, and measures to assist vulnerable groups.
- Grid stability will become central as industrial, transport, and buildings sectors electrify and demand rises to meet needs from artificial intelligence (AI).

### Overshoot, removals, and intertemporal tradeoffs
- Passing 1.5°C before potentially returning to it through negative global emissions (‘overshoot’) appears inevitable under current trajectories.
- Minimizing magnitude and duration of overshoot entails reaching global net-zero sooner and then undertaking rapid CO2 removals from the atmosphere.
- CO2 removals are currently extremely costly, entail intertemporal tradeoffs, and raise ambiguous international distributional and macroeconomic implications.
- Peak warming determines national adaptation costs; uncertainty on peak temperatures increases uncertainty on required adaptation investments.

*Source: IMF Working Papers — Cutting Emissions, Securing Energy: A Macroeconomic Assessment for COP30 (content as provided).*

### Box 1. Are Negative Emissions Economically and Politically Feasible

### Box 1. Are Negative Emissions Economically and Politically Feasible

### Economic feasibility of negative emissions and NETs
- Extracting vast amounts of CO2 from the atmosphere becomes necessary the later net-zero is achieved:
  - If net-zero is achieved as late as 2070, extraction needs could reach up to 45 billion tonnes per year in the 2080s (more than peak annual emissions, currently 36 billion in 2024).
- Negative emissions rely on highly expensive and uncertain negative emissions technologies (NETs), notably direct air capture (DAC):
  - Estimated costs of DAC range from $90 to $600 per tonne of CO2.
  - The three simplified net-zero scenarios imply peak removals of 11, 20, and 36 billion tonnes of CO2 per year.
  - Assuming current technologies, scalability, and a flat marginal cost curve, these peak removals equate to peak costs ranging $1 to $21 trillion per year (about 0.9 to 19 percent of 2024 global GDP).
- Energy intensity and physical constraints limit how low costs can fall and how much can be sequestered:
  - DAC requires filtering large volumes of air: at a global CO2 atmospheric concentration of around 425 parts per million, DAC-based technologies would need to filter through 1 million molecules of air to extract just 425 molecules of CO2.
  - There is a strict lower bound on energy required by thermodynamics.
  - Median estimates of global geological sequestration capacity put it at 1,460 billion tonnes of CO2.
  - Comparable cumulative extraction needs under illustrative scenarios (assuming net-zero in 2045, 2055, or 2065) are 325, 550 and 750 billion tonnes of CO2, respectively.
- Other constraints and costs:
  - DAC uses vast amounts of electricity, which could strain grids.
  - Challenges include leakage risk from storage sites, monitoring and verification, land-use trade-offs (for afforestation and BECCS), and limits to cost reductions due to high energy requirements.
- Unclear financing and responsibility:
  - It is unclear who would pay for large-scale negative emissions.
  - Some jurisdictions commit to negative emissions (e.g., the UK and EU), but responsibility for extracting CO2 after net-zero remains unresolved and likely contentious internationally.

### Climate timing, overshoot, and asymmetric effects
- The date of net-zero determines the magnitude of overshoot above 1.5°C; the subsequent rate of CO2 removal determines overshoot duration.
- The climate system may be asymmetric: one tonne of CO2 emitted may add more to temperatures than one tonne removed reduces temperatures (Zickfeld and others 2021).
- CO2 emissions have a fast and near-permanent impact on temperatures, with most of the increase occurring within a year of emission.
- The year of net-zero corresponds approximately to the year of peak warming (peak warming is believed to occur about a decade after emitting a ton of CO2; earlier thinking implied a longer lag).
  - Example mappings:
    - Net-zero by 2045 corresponds to peak warming roughly around that year of 1.65°C.
    - Net-zero by 2065 corresponds to peak warming around 2.0°C (i.e., not “well below 2.0°C”).
  - Assuming current emissions targets for 2030, 2035 and net-zero are met, the temperature trajectory would pass 1.5°C this decade, 2°C by 2050, and 2.5°C by 2100.

### Property rights, allocation, and near-term targets
- Clarifying a global peak temperature target would specify the remaining global carbon budget and aid transparency about country-level macroeconomic implications.
- Illustrative example:
  - Setting a global goal of peak warming “no more than 1.85 C” corresponds to global emissions cuts of 30 percent by 2035 and net-zero by 2055.
- Illustrative GHG cuts in 2035 versus 2019 for three peak temperature targets:
  - 1.7°C peak → 47 percent cut in 2035 vs 2019.
  - 1.85°C peak → 30 percent cut in 2035 vs 2019.
  - 2°C peak → 20 percent cut in 2035 vs 2019.
- Approaches to allocate emissions consistent with “common but differentiated responsibilities” include six main methods: (1) acquired rights (past emissions); (2) cost optimality; (3) gradual convergence; (4) ability to pay; (5) immediate convergence; (6) greenhouse development rights. Different approaches yield very different outcomes; the paper averages across approaches for illustrative allocations, assuming wealthier nations make steeper cuts.
- Distributional gaps (2035 illustrative targets versus current national 2035 targets) by income group:
  - For a 2°C peak: HICs are aligned, UMICs are 28 ppts away, LIC/LMICs are 4 ppts away.
  - For a 1.85°C peak: HICs are 4 ppts away, UMICs are 35 ppts away, LIC/LMICs are 19 ppts away.
  - For a 1.7°C peak: no income group is aligned currently; cuts are severe and likely infeasible.

### Macroeconomic costs, co-benefits, and fiscal implications
- If countries implement targets in least-cost ways, mitigation costs for the 1.85°C scenario are:
  - Manageable and broadly equitable across countries.
  - About 0.7 percent of GDP for the G20 as a whole.
- Mitigation costs are defined as annualized costs of switching to cleaner but more expensive inputs and technologies, net of savings from lower lifetime energy costs, and lost benefits from behavioral responses.
- Domestic environmental co-benefits can exceed mitigation costs in many emerging economies, implying net domestic welfare gains before counting global climate benefits (notably reductions in local air pollution mortality and reductions in vehicle-related side effects).
- If targets are achieved using primarily carbon pricing in a cost-effective approach, decarbonization could raise revenue in the near-term for most countries, though risks of base erosion vary across countries.

### Key statistics and figures cited
- Peak annual global emissions in 2024: 36 billion (tonnes CO2).
- Potential peak extraction need if net-zero delayed to 2070: up to 45 billion tonnes per year in the 2080s.
- DAC cost estimates: $90 to $600 per tonne of CO2.
- Illustrative peak removal scenarios: 11, 20, and 36 billion tonnes of CO2 per year.
- Estimated peak negative-emissions costs for those scenarios: $1 to $21 trillion per year (about 0.9 to 19 percent of 2024 global GDP).
- Current global CO2 atmospheric concentration: around 425 parts per million.
- Air filtration requirement example for DAC: filter through 1 million molecules of air to extract 425 molecules of CO2.
- Median geological sequestration capacity estimate: 1,460 billion tonnes of CO2.
- Cumulative extraction needs in Figure 5 scenarios (net-zero in 2045, 2055, 2065): 325, 550 and 750 billion tonnes of CO2, respectively.
- Illustrative 2035 GHG cuts vs 2019: 47 percent (1.7°C), 30 percent (1.85°C), 20 percent (2°C).
- Mitigation costs under 1.85°C: about 0.7 percent of GDP for the G20.

*Source: IMF staff — Box 1, “Are Negative Emissions Economically and Politically Feasible” (from the IMF Working Paper “Cutting Emissions, Securing Energy: A Macroeconomic Assessment for COP30”).*

### 1.5 percent of GDP, and substantially more in some cases, with the contribution to revenue from different

### wpiea2025245-source-pdf - 1.5 percent of GDP, and substantially more in some cases, with the contribution to revenue from different

### Mitigation costs, welfare impacts, and revenue effects
- Analysis references a 1.85°C Peak Scenario and reports mitigation costs and domestic welfare benefits for 2035 (Figure 8).
- Fuel tax base erosion typically causes revenue losses of around 0.2 percent of GDP or less.
- Losses to revenue from fossil fuel production are typically small but exceed one percent of GDP for fossil fuel dependent countries.
- Some countries could gain significant revenues from reducing bases for fuel subsidies (Saudi Arabia and Russia noted).
- Cutting methane emissions earlier could reduce peak warming by up to 0.3°C by 2045.

### Revenues from carbon pricing (2035) and fiscal composition
- Figure 9 decomposes carbon-pricing revenue components for 2035 by sector: power, industry, transport, buildings; also shows base erosion and fossil fuel production effects.
- Note: Revenue gains from critical mineral extraction are not captured. Losses from fossil fuel production are only captured for large oil and natural gas producers.
- Carbon pricing under scenarios can produce net revenue gains or losses across countries; the net effect combines carbon revenues less base erosion and fossil production changes.

### Energy security: definitions, channels, and heterogeneity of impacts
- Energy security dimensions: availability, accessibility, affordability, sustainability, and resilience (Table 1).
- Availability: fossil fuel risks decline with decarbonization, but renewable intermittency problematic primarily at high shares and in the absence of complementary investments.
- Accessibility: grid stability, distribution networks, digital resilience, and flexibility options (demand-side management, energy storage, green hydrogen, advanced grid technologies) become core priorities.
- Affordability: renewables can lower electricity prices but, absent complementary investments or market design, create variability in short-run prices.
- Resilience: grid modernization and storage required to offset intermittency risks alongside potential regional grid integration.
- Developing economies generally exhibit more vulnerability to fossil-fuel price shocks than advanced economies; gap has widened over the past decade.
- Countries that have reduced oil dependency and expanded alternative energy investment are better positioned to absorb fossil-price shocks.

### Opportunity of decarbonization for energy security and efficiency gains
- Renewables are indigenous energy sources with very low marginal prices and long-lived technologies versus continuously imported fuels.
- Decarbonization generally improves current account balances of fossil fuel importers from reduced consumption and lower exposure to international fuel prices.
- Example: a 10-percentage point increase in the share of nuclear, renewables and other non-hydrocarbon energy reduced long-run energy imports by 6 percentage points (study of 39 European countries, 1980–2019).
- Deep decarbonization in Japan (where 80 percent of energy is imported) could reduce import dependency to less than a half of the total primary energy supply by 2050.
- Energy efficiency: in 2011 of 532 exajoules of energy input, 290 exajoules were ‘rejected’ or wasted energy; electric vehicles are about 5 times more efficient than internal combustion engines (Figure 12).
- Full electrification of global road transport could cut total energy use by between 40 to 60 percent (Figure 13).
- Note: the ‘primary energy fallacy’ — fossil fuel based energy does not need to be substituted for renewable energy at a 1-to-1 scale.

### Variable renewable energy (VRE), grid stability, and complementary investments
- Solar PV and onshore wind have declined in cost by about 80 to 90 percent since 2010; in 2024 solar PV projects were on average 41 percent cheaper than the lowest-cost fossil fuel alternatives, onshore wind 53 percent cheaper.
- In 2024 lithium-ion battery costs fell by 20 percent in a single year.
- Among G20, renewables grew from 32 percent in 2022 to 37 percent in 2024 as a share of electricity supplied; globally, renewables accounted for 93 percent of total capacity expansion in 2024.
- BAU case: renewables expected to grow to 47 percent of G20 electricity supply by 2030.
- 1.85°C peak scenario (with carbon pricing): renewables would rise from about 20 percent of total electricity generation in 2022 to about 60 percent by 2030 and 71 percent by 2040; almost all increase in intermittent sources (solar and wind).
- Intermittency is problematic mainly when VRE shares are high and complementary investments in flexibility options are lacking.
- Complementary flexibility measures required: short- and long-term storage (batteries, compressed air, pumped hydro), energy demand management, green hydrogen for storage and grid balancing, advanced grid technologies, and transmission infrastructure.
- Examples: Lithuania and Denmark demonstrate that VRE shares exceeding 60% can be achieved without grid stability issues when complemented by appropriate investments.
- Off-grid renewables present rural opportunities but may not address grid instability in larger systems.
- Permitting reform and overcoming powerful fossil-fuel lobbies are major obstacles to renewables’ growth.

### Fiscal policy instruments to support VRE integration and investment
- Fiscal policies include pricing mechanisms, direct incentives, and targeted public investments in grid infrastructure.
- Instruments: Feed-in Tariffs (FITs) and Contracts-for-Difference (CfDs); two-sided CfDs guarantee a fixed strike price with government paying shortfall or receiving surplus.
- Revenue-neutral options: charging fees on high-emission generation and using revenues to fund rebates on low-emission generation (“feebates”).
- Many developing countries face high cost of capital in the power sector; addressing economy-wide borrowing costs and sector-specific issues (insolvent state-owned utilities, land tenure) helps unlock low-carbon investment.

### Macroeconomic risks and distributional impacts of the energy transition
- Near-term macroeconomic costs of the energy transition are manageable with carefully designed policies; BoP impacts are asymmetric: fossil fuel importers benefit while fossil exporters face declining hydrocarbon revenues.
- Accelerated transition often involves an unstable “mid-transition” where fossil-based and low-carbon systems coexist, requiring large-scale policy changes.
- Carbon pricing is the most effective single policy tool but can have near-term inflationary impacts.
  - GMMET simulations: carbon price rising to $50 per tonne for China, Euro Area, US and rest of the world adds around 0.05-0.2 percentage points to annual inflation in year 1, declining thereafter.
  - Figure 17 scenario: carbon price starts at $20 per tonne in 2025, rising to $50 in 2030, and is flat thereafter; 70 percent of revenue is used for labor income tax reductions and 30 percent for household transfers.
- Revenue recycling: using carbon pricing revenues to reduce taxes on labor and capital could boost production over the longer term and possibly lower prices.
- Alternative mitigation instruments (feebates, emission rate standards) have weaker impacts on energy prices but are less cost-effective than carbon pricing.

### Revenue losses for fossil fuel exporters and policy responses
- Under a 1.85°C peak scenario with falling prices, fuel-exporting countries face large revenue declines of over 3 percent of GDP per year by 2035 compared with BAU (examples include Libya, Kuwait, Qatar, Congo).
- In many of the countries shown, explicit fossil fuel subsidies in 2024 exceed projected revenue losses from a 1.85°C scenario in 2035 in 10 out of 14 countries illustrated.
- Policy responses for vulnerable exporters:
  - Economic and fiscal diversification.
  - Gradual removal of explicit fossil fuel subsidies and using revenue gains for public investment, reductions in distortionary taxes, and mitigation for vulnerable households and firms.
  - Potential bilateral or bloc-level arrangements: advanced importers could preferentially purchase fuels from vulnerable exporters at prices above market rates in exchange for accelerated economic and fiscal diversification and reform (including subsidy elimination, carbon pricing, liberalizing domestic energy prices, deregulating energy supply).
  - Structural reforms to reduce energy and emissions intensity of output.

*IMF WORKING PAPERS Cutting Emissions, Securing Energy: A Macroeconomic Assessment for COP30. INTERNATIONAL MONETARY FUND.*

### Box 2. What are the Elements of a Revenue Diversification Strategy for Fuel Exports-Dependent

### Box 2. What are the Elements of a Revenue Diversification Strategy for Fuel Exports-Dependent Countries?

### Key elements of a revenue diversification strategy
- Adjustments to fiscal regimes:
  - Shift the mix from production-based to profit based taxes if countries wish to extend the life of fossil fuel reserves (this shifts risks from investors to the government), after a robust assessment of the impacts on revenue and investment.
- Strengthening fiscal resilience:
  - Build fiscal buffers and frameworks to better manage resource wealth (for example through sovereign wealth funds).
- Enhance financial-sector resilience:
  - Strengthen regulatory, supervisory, and macro-prudential frameworks to better handle energy price volatility.
- Implement pro-growth regulatory and institutional reforms:
  - Remove regulatory barriers to competition, pursue trade integration, and promote labor market flexibility.
- Promote an enabling public sector:
  - Invest in infrastructure for growth sectors and limit the size of the public sector workforce and premiums over private sector wages.
- Promote economic diversification:
  - Streamline tax structures and lower entry requirements to mobilize foreign direct investment.
  - Deepen integration in global value chains by enhancing production efficiency, improving technological capacity, and ensuring wage competitiveness.
  - Enhance vertical diversification in existing sectors by shifting to higher value-added products.
- Target green technologies:
  - Pursue opportunities where existing export infrastructure could be repurposed (example cited: green hydrogen production).

### Risks and policy implications from Transition-Critical Materials (TCMs)
- Nature of TCM dynamics:
  - Low-carbon technologies needed for the transition increase demand for Transition-Critical Materials (TCMs; e.g., lithium, copper, nickel, REEs).
  - TCM supply and processing capacity is often geographically concentrated, raising risks of bottlenecks, price volatility, and financial risk (Miller and others 2023).
- IMF estimates and scenario figures:
  - Global prices for these critical mineral prices could become more volatile and rise substantially, about 90 percent to 2030 according to IMF estimates.
  - Under NGFS ‘Net Zero by 2050’ projections, lithium demand could exceed 360 percent of current supply by 2040. (Miller and others 2023).
- Potential economic and financial consequences:
  - Supply-demand imbalances could lead to competition for resources between economic sectors (inter-sectoral shifts in demand), resulting in higher commodity prices and potentially jeopardizing the financial viability of low-carbon technology projects.
  - Commodity prices in transition-critical sectors could therefore be viewed as systemically significant, requiring close monitoring to prevent inflation and instability (Weber and others 2024; Miller and others 2023).

*IMF Working Paper — Box 2. What are the Elements of a Revenue Diversification Strategy for Fuel Exports-Dependent Countries?*

### Annex IV. Allocating Property Rights Over

### Annex IV. Allocating Property Rights Over Emissions: An Illustrative Example

### Background and equity framing
- Climate mitigation and international equity are intrinsically linked; equity is framed as “common but differentiated responsibilities and respective capabilities.”
- Under the Kyoto Protocol, “Annex I” countries were required to cut emissions, whereas “non-Annex I” countries were not; when the Protocol came into force in 2012, developing countries already accounted for a majority of annual emissions but less than half of historical emissions.
- Developing countries account for two-thirds of annual CO2 emissions now.
- Under the Paris Agreement, all countries are committed to cutting emissions, with high-income countries (HICs) going faster while providing financial and technological assistance to developing countries.

### Six approaches to distributing global emissions cuts (ordered from least to most “equitable” by emissions cuts versus BAU)
- Acquired rights (“grandfathering”): countries cut emissions proportionate to their historical (for example, 2010) annual emissions.
- Cost optimality: emissions are cut at their least-cost location to minimize global costs.
- Gradual convergence: per capita emissions converge linearly over time.
- Ability to pay: emissions cuts are based on annual per capita GDP, with lower reductions calculated based on the poverty of a country and considering that costs increase with larger emissions reductions.
- Immediate convergence: per capita emissions converge immediately.
- Greenhouse development rights (GDR): emissions cuts are based on a mixed measure of historical responsibility and capability, which includes GDP per capita and carbon intensity.

### Illustrative impacts across approaches (selected highlights)
- Acquired rights and cost-optimal paths lead to fewer emissions reductions in HICs compared with other methods because HICs’ historical per capita emissions and marginal abatement costs are both relatively high compared with middle-income countries and LICs.
- Gradual convergence and ability to pay lead to intermediate outcomes, with all countries required to cut emissions compared with baseline and larger absolute cuts in HICs than in middle-income countries and LICs.
- Immediate convergence and GDR lead to large cuts in HICs and much smaller reductions (or even increases) in developing countries:
  - Under GDR, Japan faces cuts of more than 100 percent (that is, requiring annual carbon removals).
  - Under GDR, India grows its emissions to be above even BAU in 2030.

### Illustrative aggregation: averaging approaches and linking to per capita incomes
- A simplifying illustrative method averages across the six approaches and links implied targets to per capita incomes.
- Current NDCs and their relationship to per capita incomes show a positive but weak relationship between current country ambition (defined in terms of emissions cuts versus BAU) and per capita income.
- The implied illustrative emissions reduction targets compared with BAU in 2030 can be inferred for key countries across the six approaches; plotting these targets relative to per capita incomes yields a linear relationship between emissions cuts and (log) per capita income levels, with the slope determining relative effort across the income distribution.
- Assuming countries achieve the maximum of the illustrative target (in percentage reduction versus BAU given their per capita income) and their current NDC, the linear relationship can be scaled upward or downward (in percentage points) to achieve different peak temperature targets (for example, 2°C or 1.85°C).

### Outcomes of the illustrative example for 2035 targets
- The illustrative example yields targets as or even more progressive than current NDCs (slope is similar or steeper) while delivering needed emissions reductions for peak temperature–aligned global pathways.
- Figures AIV.1 to AIV.4 illustrate what enhanced, 2°C, 1.85°C, and 1.7°C-aligned 2035 targets would be under this approach.
- Ambition would be raised substantively for most countries, but cuts remain broadly progressive, with a positive relationship between projected 2035 per capita income and country ambition.

*Source: IMF staff calculations using CPAT; Annex IV, "Allocating Property Rights Over Emissions: An Illustrative Example."*

### Annex VI. Illustrative Temperature-Aligned

### Annex VI. Illustrative Temperature-Aligned Targets by Country (2035)

### Illustrative emissions targets (Table AVI.1)
- Table AVI.1 reports, for each listed country, the following 2035 values: Baseline GHG emissions in 2035 (MtCO2e); Illustrative 2C aligned target in 2035 (MtCO2e); Percent cut vs. baseline (negative = increase) for the 2C target; Illustrative 1.85C aligned target in 2035 (MtCO2e); Percent cut vs. baseline (negative = increase) for the 1.85C target; Baseline per capita GHG emissions in 2035 (tCO2/person); Illustrative 2C aligned per capita GHG emissions in 2035 (tCO2/person); Illustrative 1.85C aligned per capita GHG emissions in 2035 (tCO2/person).
- Selected country entries from Table AVI.1 (values taken verbatim from the table):
  - Afghanistan: Baseline GHG emissions in 2035, MtCO2e = 35.9; Illustrative 2C aligned target in 2035, MtCO2e = 35.9; Percent cut vs. (negative = increase) = -252.5 -128.5 -32.5; Illustrative 1.85C aligned target in 2035, MtCO2e = 35.9; Percent cut vs. (negative = increase) = -252.5 -128.5 -32.5; Baseline per capita GHG emissions in 2035, tCO2/person = 0.6; Illustrative 2C aligned per capita GHG emissions in 2035, tCO2/person = 0.6; Illustrative 1.85C aligned per capita GHG emissions in 2035, tCO2/person = 0.6.
  - Australia: Baseline GHG emissions in 2035, MtCO2e = 429.2; Illustrative 2C aligned target in 2035, MtCO2e = 205.3; Percent cut vs. (negative = increase) = 67.2 66.3 66.0; Illustrative 1.85C aligned target in 2035, MtCO2e = 184.1; Percent cut vs. (negative = increase) = 70.6 69.8 69.5; Baseline per capita GHG emissions in 2035, tCO2/person = 14.6; Illustrative 2C aligned per capita GHG emissions in 2035, tCO2/person = 7.0; Illustrative 1.85C aligned per capita GHG emissions in 2035, tCO2/person = 6.3.
  - Brazil: Baseline GHG emissions in 2035, MtCO2e = 1644.9; Illustrative 2C aligned target in 2035, MtCO2e = 950.0; Percent cut vs. (negative = increase) = 44.9 55.8 57.9; Illustrative 1.85C aligned target in 2035, MtCO2e = 950.0; Percent cut vs. (negative = increase) = 44.9 55.8 57.9; Baseline per capita GHG emissions in 2035, tCO2/person = 7.5; Illustrative 2C aligned per capita GHG emissions in 2035, tCO2/person = 4.4; Illustrative 1.85C aligned per capita GHG emissions in 2035, tCO2/person = 4.4.
  - China: Baseline GHG emissions in 2035, MtCO2e = 15475.3; Illustrative 2C aligned target in 2035, MtCO2e = 10005.4; Percent cut vs. (negative = increase) = -183.4 -27.3 8.5; Illustrative 1.85C aligned target in 2035, MtCO2e = 8422.1; Percent cut vs. (negative = increase) = -138.6 -7.1 23.0; Baseline per capita GHG emissions in 2035, tCO2/person = 11.3; Illustrative 2C aligned per capita GHG emissions in 2035, tCO2/person = 7.3; Illustrative 1.85C aligned per capita GHG emissions in 2035, tCO2/person = 6.1.
  - Germany: Baseline GHG emissions in 2035, MtCO2e = 520.3; Illustrative 2C aligned target in 2035, MtCO2e = 257.8; Percent cut vs. (negative = increase) = 80.0 74.0 72.3; Illustrative 1.85C aligned target in 2035, MtCO2e = 236.5; Percent cut vs. (negative = increase) = 81.6 76.2 74.6; Baseline per capita GHG emissions in 2035, tCO2/person = 6.4; Illustrative 2C aligned per capita GHG emissions in 2035, tCO2/person = 3.2; Illustrative 1.85C aligned per capita GHG emissions in 2035, tCO2/person = 2.9.
  - India: Baseline GHG emissions in 2035, MtCO2e = 6211.5; Illustrative 2C aligned target in 2035, MtCO2e = 4812.1; Percent cut vs. (negative = increase) = -313.0 -126.2 -74.3; Illustrative 1.85C aligned target in 2035, MtCO2e = 4176.6; Percent cut vs. (negative = increase) = -258.4 -96.3 -51.3; Baseline per capita GHG emissions in 2035, tCO2/person = 3.9; Illustrative 2C aligned per capita GHG emissions in 2035, tCO2/person = 3.0; Illustrative 1.85C aligned per capita GHG emissions in 2035, tCO2/person = 2.6.
- The table includes many country entries (selected examples above); values are presented verbatim in the table for Baseline, 2C-aligned, and 1.85C-aligned targets and per-capita equivalents for 2035.

### Notes and definitions from the table
- Source: IMF staff calculations using CPAT.
- Note: The terms "country" and “economy” do not in all cases refer to a territorial entity that is a state as understood by international law and practice. The terms also cover some territorial entities that are not states.
- Abbreviations: GHG = greenhouse gas; MtCO2e = million tonnes of CO2 equivalent; tCO2 = tonnes of CO2.

*Source: IMF staff calculations using CPAT.*

---

### Annex VII. Understanding Mitigation Costs

### Key concepts and mechanics
- Cutting economy-wide emissions at least cost involves equating the cost of the last tonne reduced across responses and sectors; the economy-wide marginal abatement cost (MAC) curve is the envelope (horizontal summation) of sectoral MAC curves for switching to clean fuels and other responses.
- Reducing economy-wide emissions by ΔE at least cost involves emissions reductions of ΔE1 and ΔE2 from fuel/input switching in industry and power generation respectively, and so on.
- If only a limited range of behavioral responses is exploited, total mitigation costs—the integral under the relevant MAC curve over the range of emissions reductions—will be higher for a given total emissions reduction because the narrower policy pushes along a steeper MAC schedule.
- Economists measure costs of environmental and other regulations, government investments, taxes, and other policies using the concept of welfare costs. In the context of climate mitigation:
  - The welfare cost of the CO2 reductions from reducing a particular fuel with no prior tax or subsidy is the mitigation cost, or integral under the marginal abatement cost schedule.
  - Costs would be larger or smaller if there were a pre-existing tax or subsidy on the fuel.
  - The costs from carbon pricing can therefore be approximated by adding up the mitigation costs from the CO2 reductions for each fuel in each sector, accounting for any pre-existing fuel tax or subsidy.
  - Domestic environmental co-benefits (like reductions in local air pollution deaths) are netted out from mitigation costs to give the overall economic welfare impacts of carbon mitigation policies.
- Where fuels are subject to preexisting taxes the MAC curve for reducing the fuel starts out with a positive intercept; where fuels are subsidized the MAC for reducing them starts out with a negative intercept.
- The Climate Policy Assessment Tool takes these effects into account in calculating mitigation costs using a country-specific database of fuel taxes and subsidies (that is, costs are measured relative to a baseline with current price distortions in fuel markets, including from carbon pricing).

### Illustrative figures (from Annex Figure AVII.1 description)
- Panel 1: Economy-wide MAC curve formed as envelope of sectoral MAC curves; cost per unit of emission reduction and emission reduction axes shown; economywide MAC curve (all responses) and sectoral MAC curves (e.g., power—fuel switching; industry—fuel/input switching; transport—fuel switching; buildings—fuel switching; and corresponding “other responses”) illustrated.
- Panel 2: Comparison of total cost—all responses versus total cost—limited responses, showing MAC—limited responses steeper than MAC—all responses; ΔE and total cost areas depicted.

*Source: Annex text and figures (authors and IMF staff calculations).*

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- Gidden, Matthew J., Siddharth Joshi, John J. Armitage, Alina-Berenice Christ, Miranda Boettcher, Elina Brutschin, Alexandre C. Köberle, et al. 2025. “A Prudent Planetary Limit for Geologic Carbon Storage.” Nature 645(8079): 124–32.
- McKay, David I. Armstrong, Arie Staal, Jesse F. Abrams, Ricarda Winkelmann, Boris Sakschewski, Sina Loriani, Ingo Fetzer, et al. 2022. “Exceeding 1.5°C Global Warming Could Trigger Multiple Climate Tipping Points.” Science 377(6611).
- Reisinger, A., Fuglestvedt, J.S., Pirani, A., Geden, O., Jones, C.D., Maharaj, S., Poloczanska, E.S., Morelli, A., Johansen, T.G., Adler, C., Betts, R.A., Seneviratne, S.I., 2025. Overshoot: A Conceptual Review of Exceeding and Returning to Global Warming of 1.5°C.
- Theokritoff, E., Lejeune, Q., Costa, H.P., Irfan, K., Khan, M.S., Kropf, C.M., Lindberg, H.G., Marques, I.G., Menke, I., Schleussner, C.-F., Thomas, A., Lourenço, T.C., 2025. Climate overshoot implications for local adaptation planning. Climate Policy 0, 1–8.
- Zickfeld, Kirsten, Deven Azevedo, Sabine Mathesius, and H. Damon Matthews. 2021. “Asymmetry in the Climate–Carbon Cycle Response to Positive and Negative CO2 Emissions.” Nature Climate Change 11(7): 613–17.
- Ricke, K.L., Caldeira, K., 2014. Maximum warming occurs about one decade after a carbon dioxide emission. Environ. Res. Lett. 9, 124002.

### Carbon pricing, subsidies, and fiscal implications
- Parry, Ian, Simon Black, and James Roaf. 2021. “Proposal for an International Carbon Price Floor among Large Emitters.” (2021/001).
- Black et al. 2023d. “IMF Fossil Fuel Subsidies Data: 2023 Update.” Working paper 23/169.
- Black et al. 2024a. “Fiscal Implications of Global Decarbonization.” Working Paper 24/45.
- IMF, 2025. Fiscal Monitor April 2025: Chapter 2: Public Sentiment Matters: The Essence of Successful Energy Subsidies and Pension Reforms.

### Financial risks, materials, and transition-critical concerns
- Miller, Hugh, Simon Dikau, Romain Svartzman, and Stéphane Dees. 2023. “The Stumbling Block in ‘the Race of Our Lives’: Transition-Critical Materials, Financial Risks and the NGFS Climate Scenarios.”
- NGFS, 2025. NGFS Short-Term Climate Scenarios Technical Documentation.
- World Bank, 2024b. How to Unlock Pipelines of Bankable Renewable Energy Projects in Emerging Markets and Developing Countries? Position Paper, World Bank Group, Washington, DC.

### Other notable citations (science, policy synthesis, and trackers)
- Benveniste, Hélène, Michael Oppenheimer, and Marc Fleurbaey. 2022. “Climate Change Increases Resource-Constrained International Immobility.” Nature Climate Change 12 (7): 634–41.
- Leard, Benjamin, Joshua Linn, and Katalin Springel. 2023. “Vehicle Attribute Tradeoffs and the Distributional Effects of US Fuel Economy and Greenhouse Gas Emissions Standards.”
- Net Zero Tracker. 2025. https://zerotracker.net/.
- UNEP. 2024. “Emissions Gap Report 2024: No More Hot Air ... Please!”
- UNFCCC. 2016. “Paris Agreement, United Nations Framework Convention on Climate Change.”
- UNFCCC. 2024. “Nationally Determined Contributions under the Paris Agreement: Synthesis Report by the Secretariat.”

*Cutting Emissions, Securing Energy: A Macroeconomic Assessment for COP30 — Working Paper No. WP/2025/245*

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_Source: https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025245-source-pdf.pdf_