Remarks by the Managing Director at the Carbon Pricing Leadership Coalition Meeting at COP26

IMF News, November 2, 2021

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Recent country example: Uruguay introduced a carbon price of $120 per ton.
Global average carbon price today: around $3 per ton.
Target for meaningful emissions reductions and to retain hope of keeping temperatures within 1.5 degree-or close to 1.5 degrees: reach $75 a ton or more.

Core proposal: an international carbon price floor to ensure large emitters have compatible carbon pricing.
Equity design principle: a differentiated price depending on the level of development:
- Lower for low-income countries.
- Higher for middle income countries.
- Somewhat higher again for rich economies.
Pragmatism in instrument choice:
- Preference: carbon tax, described as the most efficient approach.
- Recognition: carbon trading also delivers incentives for innovation and “it works,” per cited example from the President of the European Commission.
Inclusivity of the framework:
- Proposes building a larger “tent” that includes tax and trade and allows for regulatory equivalency of a carbon price where pricing is not yet politically possible.
- Objective: create equivalency of development level and equivalency of instruments.

Incentives: putting a price on carbon generates self-interest that helps drive emissions reductions.
Risk if no common approach: adoption of border adjustment mechanisms, described as a “huge headache” and much less efficient than coordinated adoption of carbon price regimes with equivalencies.

The speaker is optimistic about progress toward compatible international carbon pricing.
Emphasis on pragmatic, equitable, and inclusive design to achieve widespread adoption and efficiency gains.

Remarks by the Managing Director at the Carbon Pricing Leadership Coalition Meeting at COP26, November 2, 2021.