Launch of IMF Staff Climate Note: A Proposal for an International Carbon Price Floor Among Large Emitters

IMF News, June 18, 2021

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Canonical URL: Launch of IMF Staff Climate Note: A Proposal for an International Carbon Price Floor Among Large Emitters

Remarks by Managing Director Kristalina Georgieva at the Brookings Institution Event: Building climate cooperation: The critical role for international carbon price floors.
Date: June 18, 2021.
IMF climate work rests on four pillars: carbon pricing, public investment, disclosure standards and just transition.
The published IMF staff proposal (under discussion with the IMF Board and membership) sets out how an international carbon price floor can help accelerate the transition to low carbon growth during this decade.

Carbon pricing is identified as the most effective incentive to achieve decarbonization at the scale and speed needed to reach the goals of the Paris Agreement.
Gradually increasing price on carbon encourages innovation and transition to renewable energy, clean mobility, and low carbon technologies.
To limit global warming to 1.5 to 2 degrees will require emissions to be cut by a quarter to a half by 2030; this is unlikely to happen without measures equivalent to a global carbon price of around $75 per ton by the end of this decade.
Current progress and gaps:
- Over 60 national and subnational carbon pricing schemes around the world.
- Four-fifths of global emissions still remain unpriced.
- The global average emissions price is only $3 per ton.

The proposal would have three crucial elements:
- Focus on a small number of large emitters (such as some or all G20 countries) to ease negotiations while covering a big percentage of global emissions.
- Anchor the agreement on a minimum carbon price — a single, efficient parameter — to allow simultaneous action across different countries and reassure participants that others are acting in coordination.
- Ensure the agreement is flexible, pragmatic, and equitable, accounting for different responsibilities across countries with different pricing based on different development levels and historical emissions.
A carbon price floor arrangement does not imply carbon taxes per se; it can operate through other policy measures such as regulation or emissions trading that achieve equivalent outcomes.

Example participant group: Canada, China, EU, India, UK, and US.
Illustrative price paths by 2030:
- $75 carbon price by 2030 for advanced countries.
- $50 for higher-income emerging economies.
- $25 for lower-income emerging countries.
Projected outcome:
- This scheme could help achieve a 23 percent reduction in global emissions below baseline by 2030, enough to bring emissions in 2030 in line with keeping global warming below 2°C.

Domestic benefits:
- Carbon revenues can help secure a just transition by compensating households for price increases and helping businesses and workers move from high to low-carbon intensity activities.
International benefits:
- An international carbon price floor would be less divisive and far more effective than unilaterally imposed border carbon adjustments (taxes on the carbon content of imports) that may otherwise emerge.
Political economy and precedent:
- Recent coordinated international action examples cited:
- To save the global economy, governments injected around $16 trillion in support in the last 15 months.
- Scientists developed vaccines in record time through cooperation.
- G7 ministers agreed to end the race to the bottom in corporate taxation and endorsed stepped up action on climate change by the IMF.

A robust price on carbon can play a hugely important role, especially when produced by an international agreement.
The IMF sees an international carbon price floor as a viable option to reach such an agreement and will continue its work on it.

Remarks by Managing Director Kristalina Georgieva, June 18, 2021.