France: Selected Issues
IMF Staff Country Reports, July 12, 2024
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Bibliographic details
- Published: July 12, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400281488.002
Overview
- The Selected Issues paper provides a deep dive on the climate transition for France, discussing macroeconomic implications, fiscal policies, and financial risks.
- France has taken a leadership role in global mitigation initiatives.
- The transition toward a low-carbon economy and the structural changes associated with it can pose important economic and financial challenges if not well-managed and timed.
- A growing number of central banks and global institutions increasingly acknowledge the financial stability implications of climate transition risk.
Macroeconomic implications
- The paper analyzes how the climate transition affects the broader economy through structural change, sectoral shifts, and timing of adjustments.
- It emphasizes that poor management or mistiming of the transition can amplify economic and financial challenges.
Fiscal policy options and revenue recycling
- Revenue could be recycled through targeted cash transfers to vulnerable households and reductions in labor and/or corporate income taxes.
- Sectoral policies can usefully complement carbon pricing while helping balance fiscal, economic, equity, and acceptability objectives.
- Transitioning to distance-based charges can help:
- close emissions gaps,
- reach the sectoral carbon budget,
- and maintain revenue.
Financial sector and stability risks
- French banks should continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes.
- The paper highlights the importance of financial institutions and regulators recognizing and addressing transition-related financial stability implications.
Policy recommendations and instruments
- Combine carbon pricing with targeted sectoral policies to balance fiscal, economic, equity, and political acceptability objectives.
- Recycle carbon or transition-related revenues to protect vulnerable households and reduce distortionary labor and corporate taxes.
- Implement distance-based charges in transportation to better align with emissions targets and preserve revenue streams.
- Strengthen bank governance, strategy, and risk management to manage climate transition risks and their financial stability implications.
International Monetary Fund. "France: Selected Issues", July 12, 2024.
Content in this bundle
- France: Selected Issues; IMF Country Report No. 24/217; June 18, 2024