After Paris: Fiscal, Macroeconomic and Financial Implications of Global Climate Change
Staff Discussion Notes, January 11, 2016
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- After Paris: Fiscal, Macroeconomic and Financial Implications of Global Climate Change
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Bibliographic details
- Authors: Mai Farid, Michael Keen, Michael G. Papaioannou, Ian W.H. Parry, Catherine A Pattillo, Anna Ter-Martirosyan
- Published: January 11, 2016
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781513506562.006
Summary and central findings
- The paper discusses implications of climate change for fiscal, financial, and macroeconomic policies.
- Implementing the emissions mitigation pledges submitted by 186 countries for the December 2015 Paris Agreement is most pressing.
- Carbon taxes (or equivalent trading systems) are emphasized as primary tools to implement those pledges while providing revenue for lowering other taxes or debt.
- Carbon pricing in developing countries would effectively mobilize climate finance.
- Carbon price floor arrangements are identified as a promising way to coordinate policies internationally.
- Targeted fiscal measures, tailored to national circumstances and robust across climate scenarios, are needed to counter private sector under-investment in climate adaptation.
- Increased disclosure of carbon footprints, stress testing of asset values, and greater proliferation of hedging instruments will facilitate low-emission investments and climate risk diversification through financial markets.
Fiscal policy recommendations
- Use carbon taxes (or equivalent trading systems) to:
- Implement emissions mitigation pledges from the Paris Agreement (186 countries; December 2015).
- Provide revenue that can be used to lower other taxes or reduce debt.
- Design targeted fiscal measures that:
- Are tailored to national circumstances.
- Are robust across climate scenarios.
- Counter private sector under-investment in climate adaptation.
Climate finance and carbon pricing
- Carbon pricing in developing countries as an effective mechanism to mobilize climate finance.
- Carbon price floor arrangements as a promising international coordination instrument.
Macroeconomic and financial sector implications
- Greater disclosure of carbon footprints is needed to inform market participants.
- Stress testing of asset values should be used to assess climate-related risks.
- Proliferation of hedging instruments can facilitate:
- Low-emission investments.
- Climate risk diversification through financial markets.
Content in this bundle
- Executive Summary