MD Remarks to EU Pavilion Discussion on Carbon Pricing and Carbon Markets
IMF News, December 1, 2023
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- Published: December 1, 2023
Main message
- Accelerating decarbonization requires pricing carbon; borrowing to fund decarbonization is unaffordable while pricing carbon is pragmatic, raises revenues, creates incentives for behavior change, and is equitable.
- These remarks have been lightly edited for clarity. (December 1, 2023)
Three core points from the Managing Director
- Point One: Necessity of carbon pricing
- It is not possible to decarbonize fast enough without pricing carbon; IMF research is conclusive that pricing carbon is necessary for the speed of transformation required.
- Point Two: At what level should carbon be priced?
- Current coverage and prices:
- "close to 25% of emissions covered."
- Carbon average price for these covered emissions is "$20 per ton."
- Price needed "somewhere around $85 per ton by 2030 to keep ‘1.5 degrees alive’?"
- "75 percent of emissions yet to be covered."
- Overall average price today: "$5 a ton."
- Conclusion: "We have a way to go, and we need to go faster."
- Point Three: Role of the IMF in supporting members
- Advocate for a broad approach that allows pricing carbon in different ways and builds the "biggest possible tent" for all pricing approaches.
- Preferential order of approaches cited:
- Best/most efficient: taxing carbon — "Taxes are easy to execute: countries that have chosen to tax have shown that they continue to enjoy growth while their emissions go down."
- Alternative: emissions trading (example: European Union) — "We can see how impactful it is. It also raises revenues."
- Acceptable under time constraints: regulatory approaches — "indirectly pricing carbon by gradually increasing standards. Industries (and ultimately consumers) can pay the price for carbon emissions in that way."
- Political viability constraint: "But taxing carbon is not politically viable in some countries, and we have no time to build political viability."
IMF policy recommendations and equivalency framework
- Build equivalency across approaches to facilitate broad adoption:
- First: equivalence covering "tax, trade and regulatory compliance."
- Second: equivalency "of carbon price vis-à-vis level of economic development: rich countries pay more, middle-income countries pay less."
- Acknowledge differential readiness: "Some low-income countries are ready to establish a price of carbon, but others that maybe are fragile states – we must accept they are not part of this equation yet."
- Strategic approach:
- "If we go the way of carbon price equivalency, and then work hard to build the different approaches in a compatible fashion – we would take away the argument of political difficulty."
- Collaborate with partners: "work with our partners: the World Bank, or OECD, the World Trade Organization -- to create two types of equivalency."
- Praise for WTO action: "The WTO deserves praise for putting pressure on institutions to work together on a task force to work on equivalency and make sure that carbon pricing is something that is not just talked about, but that exists everywhere."
Key statistics and figures (verbatim)
- "close to 25% of emissions covered."
- Carbon average price for covered emissions: "$20 per ton."
- Price needed by 2030 to keep ‘1.5 degrees alive’?: "$85 per ton by 2030 to keep ‘1.5 degrees alive’?"
- Share of emissions not yet covered: "75 percent of emissions yet to be covered."
- Overall average price today: "$5 a ton."
Closing
- Urgent call to action: broaden acceptance of multiple carbon-pricing mechanisms, build equivalency across mechanisms and countries, and move quickly to scale coverage and raise prices to meet climate goals.
- "Thank you."
IMF Managing Director speech, December 1, 2023.