IMF Survey : Policymakers Face Historic Opportunity to Fight Climate Change

IMF News, October 10, 2015

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Seminar at the IMF-World Bank Annual Meetings in Lima, Peru convened climate experts and international organization representatives to discuss policy responses to climate change.
Central message: low fossil fuel prices create a policy window to introduce carbon pricing and eliminate energy subsidies, generating revenue and discouraging energy consumption.

Energy price context:
- "A 50 percent drop in fossil fuel energy prices in a little over a year" creates an opportunity to implement climate measures.
Carbon pricing and subsidy reform outcomes:
- British Columbia introduced a revenue-neutral carbon tax in 2008, starting at "$10 a ton and gradually raising it."
- Result reported for British Columbia: "reduced its consumption of all fuel types by 16 percent" while "across Canada it rose by 3 percent."
Access and equity:
- "In India, for example, about 40 percent of the population doesn’t have access to electricity."
- "The top twenty emitting countries are responsible for roughly 90 percent of global emissions."
International pledges:
- Advanced economies have pledged to channel "$100 billion a year to the developing world for this purpose starting in 2020."

British Columbia carbon tax:
- Implemented 2008, revenue-neutral, began at "$10 a ton," raised gradually.
- Associated outcomes: "reduced its consumption of all fuel types by 16 percent" and the province's economy "grew faster than the rest of Canada."
India perspective:
- Energy access framed as life-or-death; climate measures perceived differently where "about 40 percent of the population doesn’t have access to electricity."
- Political economy challenge: perception that developing countries "had nothing to do with the problem."

Equity concern emphasized: historical responsibility and moral obligation—"a subset of countries that have caused this historically and that therefore have the moral responsibility to help developing countries."
Financing challenge:
- Need for a coherent global system for climate financing; existing pledge: "$100 billion a year ... starting in 2020."
- Panelists stressed revenue from carbon pricing and subsidy reform should be used to:
- "drive infrastructure change,"
- "advance technology change,"
- "share the sorts of breakthroughs needed to bring energy security to people in the developing world."
Free rider problem and policy heterogeneity:
- Risk of "a ludicrous mosaic of fundamentally different policies" and countries worrying "that their neighbor isn’t doing enough."

Seize low-price window:
- Introduce a carbon tax or emissions trading scheme while energy prices are low to make price increases more palatable.
- Eliminate energy subsidies during the low-price period.
Design and communication:
- Set a carbon price equal to the cost of the "externality" (damage from climate change) to internalize climate costs.
- Raise public awareness continuously to build political support for carbon pricing.
Use revenue wisely:
- Recycle revenues to reduce more harmful taxes, finance mitigation/adaptation, and promote sustainable development objectives.
Country-specific approaches:
- Tailor emissions reduction pathways to each country’s circumstances while pursuing "common objectives that are achieved in a modestly fair way."

Time sensitivity:
- Consensus that "time is of the essence"; the global community "didn’t have the luxury of holding out for the perfect global system."
- Recommendation: pursue pragmatic international agreement on shared objectives ahead of the Paris Summit (COP21).

Source: IMF Survey : Policymakers Face Historic Opportunity to Fight Climate Change (October 10, 2015).