Joint Report Explores Scope for Coordinated Approaches on Climate Action, Carbon Pricing, and Policy Spillovers
IMF News, October 23, 2024
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Bibliographic details
- Published: October 23, 2024
Overview and purpose
- Five international organizations released a joint report titled "Working Together for Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals" on October 23, 2024.
- Convening and contributors:
- Convened by the World Trade Organization and joined by the International Monetary Fund, the Organization for Economic Co-operation and Development, United Nations Trade and Development (UNCTAD), and the World Bank.
- Objective: outline pathways for coordinated approaches on climate action, carbon pricing, and cross-border effects of climate change mitigation policies to help achieve global climate goals.
Key factual findings and metrics
- Carbon pricing instruments in effect:
- "75 carbon taxes and emission trading schemes currently in effect worldwide, covering approximately 24 per cent of global emissions."
- Trade-related climate measures:
- "Over 5,500 measures linked to climate objectives notified to the WTO from 2009-2022."
- International collaboration examples:
- "The OECD's Inclusive Forum on Carbon Mitigation Approaches, now with 59 members."
Major contributions of the report (enumerated)
- Provides a common understanding of carbon pricing metrics to improve transparency on how countries are shifting incentives for decarbonization.
- Examines the composition of climate change mitigation policies, emphasizing the important role of carbon pricing as a cost-effective instrument that also raises revenues.
- Outlines how international organizations can support the coordination of policies to foster positive and limit negative cross-border spillovers from climate change mitigation policies.
- Analyses the advantages and disadvantages of carbon border adjustment policies, including their impact on developing countries.
- Shows how coordination can help scale up climate action by closing the transparency, implementation, and ambition gaps.
Identified knowledge gaps and research needs
- Need for more granular and better data on embedded carbon prices and embedded emissions.
- Need for further work on the design of border adjustment policies and their interoperability.
- Need for research on other approaches to enhance cooperation to increase ambition and ensure a just transition for all.
Policy analysis and recommended focus areas (from institutional statements)
- IMF Managing Director Kristalina Georgieva:
- Carbon pricing and equivalent policies are important to scale up climate action.
- "Global emissions need to be cut urgently to put the world on track to achieve the Paris goals and global ambition needs to be doubled to quadrupled."
- Carbon pricing should be part of a well-designed policy mix, complemented with public investment support and sectoral policies.
- International coordination on mitigation action could unlock progress.
- WTO Director-General Ngozi Okonjo-Iweala:
- Trade-related climate policies generate cross-border spillovers that can increase trade tensions and retaliatory trade actions.
- Future work should focus on concrete ways to coordinate more ambitious carbon pricing policies and may require a framework for interoperability between carbon pricing and other climate mitigation policies.
- OECD Secretary-General Mathias Cormann:
- Aligning differing national approaches is needed for a truly global impact.
- More coherent and better-coordinated global mitigation policies can help prevent carbon leakage or trade distortions while maximizing opportunities for innovation, cost savings, and shared benefits.
- UNCTAD Secretary-General Rebeca Grynspan:
- Emphasizes evidence-based climate-related measures, including Border Carbon Adjustments mechanisms (BCAs), that minimize negative spillovers on developing countries and other sustainable development goals.
- Highlights constraints for less advanced economies: limited productive capacity, infrastructure for monitoring, verification, reporting, and fiscal space.
- Commits to support developing countries to decarbonize and diversify economies, seize environmental-related export opportunities, and reduce compliance and trade costs associated with transitions.
- World Bank Senior Managing Director Axel van Trotsenburg:
- Technical assistance and financing can tailor climate policies to country context, capacities, political constraints, and development priorities.
- Carbon pricing provides incentives for the private sector and public revenues to support development and help vulnerable populations manage the green energy transition.
- Emphasizes the growing need for cooperation and coordination as countries introduce their own climate policies.
- The report offers concrete ideas to design climate policies that benefit lower-income economies and help them accelerate development, create jobs, and participate in global value chains.
Implications for policy coordination and next steps
- Coordination goals:
- Foster positive cross-border spillovers and limit negative spillovers from mitigation policies.
- Close transparency, implementation, and ambition gaps to scale up climate action.
- Practical priorities identified:
- Develop interoperable designs for border adjustment policies and other coordination mechanisms.
- Improve data on embedded carbon prices and embedded emissions to inform policy design and transparency.
- Support capacity building and technical assistance for developing countries to ensure a just transition and minimize adverse spillovers.
- Emphasis on balancing climate ambition with development objectives, fiscal considerations, and equitable treatment of less advanced economies.
IMF Communications Department, October 23, 2024.