Economic and Environmental Benefits from International Cooperation on Climate Policies

Departmental Papers, March 17, 2022

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The paper analyzes international mechanisms to scale up global action on climate mitigation and address the ambition and policy gap to keep temperature increases below the 2°C agreed in Paris.
Despite new commitments made at COP 26, an ambition and a policy gap remains at the global level.
Avoiding the worst outcomes of climate change requires an urgent scaling up of climate policies.
Recent policy proposals highlighted:
- Common minimum carbon prices underlying the IMF’s international carbon price proposal (Parry, Black, and Roaf 2021).
- The climate club proposal of the German government.
New elements in contemporary carbon pricing proposals:
- Use of carbon price floors, which allow countries to do more if they wish.
- Differentiation of carbon price floors by level of development.
In the absence of international coordination, countries with ambitious climate policies are considering introducing border carbon adjustment mechanisms to prevent domestic producers from being at a competitive disadvantage.
A key global question: whether border carbon adjustment would deliver substantial additional emissions reductions or incentivize other countries to join a carbon price floor agreement.

International coordination mechanisms considered include common minimum carbon prices and carbon price floor agreements differentiated by development level.
Border carbon adjustment (BCA) is being considered as a unilateral policy tool by ambitious jurisdictions to preserve competitiveness.
The paper explores the potential interactions between BCAs and international carbon price floor agreements, focusing on their environmental effectiveness and incentive effects for broader participation.

ICPF scenario (implicit in keywords): international coordination via global minimum carbon prices / carbon price floor agreements differentiated by development level.
Border carbon adjustment scenario: unilateral BCA deployment by jurisdictions with ambitious domestic climate policies.
Baseline emission projection and BCA-versus-coordination comparisons are central analytical constructs (referenced in keywords).

Subject: Climate change, Climate policy, Environment, Greenhouse gas emissions, International organization, Political economy
Keywords: Africa, B. policy scenario overview, baseline emission projection, border carbon adjustment, carbon price floor agreement, Caribbean, Climate change, climate policy, Climate policy, East Asia, GDP cost, Global, global minimum carbon prices, Greenhouse gas emissions, ICPF scenario, international coordination