EU Climate Mitigation Policy

Author/Editor:

Jiaqian Chen ; Maksym Chepeliev ; Daniel Garcia-Macia ; Dora M Iakova ; James Roaf ; Anna Shabunina ; Dominique van der Mensbrugghe ; Philippe Wingender

Publication Date:

September 16, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper aims to contribute to the debate on the choice of policies to reach the more ambitious 2030 emission reduction goals currently under consideration. It provides an analysis of the macroeconomic and distributional impacts of different options to scale up the mitigation effort, and proposes enhancements to the existing EU policies. A key finding is that a well-designed package, consisting of more extensive carbon pricing across EU countries and sectors, combined with cuts in distortionary taxes and targeted green investment support, would allow the EU to reach the emission goals with practically no effects on aggregate income. To enhance the social and political acceptance of climate policies, part of the revenue from carbon pricing should be used to compensate the most vulnerable households and to support the transition of workers to greener jobs. A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU (“carbon leakage”). From a risk-reward perspective, the benefits of reducing the risk of extreme life-threatening climate events and the health benefits from lower air pollution clearly outweigh the costs of mitigation policies.

Series:

Departmental Paper No.13

Subject:

Frequency:

occasional

English

Publication Date:

September 16, 2020

ISBN/ISSN:

9781513552569/2616-5333

Stock No:

EUCMPEA

Format:

Paper

Pages:

67

Please address any questions about this title to publications@imf.org