The Great Carbon Arbitrage
IMF Working Papers, June 1, 2022
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Bibliographic details
- Authors: Tobias Adrian, Patrick Bolton, Alissa M. Kleinnijenhuis
- Published: June 1, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400210532.001
Summary
- We measure the gains from phasing out coal as the average social cost of carbon times the quantity of avoided emissions.
- By comparing the present value of benefits from avoided emissions against the present value of costs of ending coal and replacing it with renewables, our conservative baseline estimate is that the world can realize a net gain of $85 trillion.
- This global net social benefit can be attained through an international agreement to phase out coal.
- We also explore how this net benefit is distributed across countries and find that most countries would benefit from a global coal phase-out even without any compensatory cross-country transfers.
- Finally, we estimate the size of public funds that must be committed under a blended finance arrangement to finance the cost of replacing coal with renewables.
Key Findings and Projections
- Net global social benefit (conservative baseline estimate): $85 trillion.
- Measurement approach: average social cost of carbon multiplied by the quantity of avoided emissions.
- Benefit–cost comparison: present value of benefits from avoided emissions versus present value of costs of ending coal and replacing it with renewables.
Distributional Analysis
- Most countries would benefit from a global coal phase-out even in the absence of compensatory cross-country transfers.
Financing and Policy Implications
- Achievement channel: an international agreement to phase out coal can attain the global net social benefit.
- Financing arrangement considered: blended finance with public funds; the paper estimates the size of public funds that must be committed to finance replacing coal with renewables.
Subject Areas and Keywords
- Arbitrage, Climate finance, Commodities, Environment, Greenhouse gas emissions, Non-renewable resources, Renewable energy
- Keywords include: Africa, Arbitrage, baseline estimate, Carbon, carbon arbitrage, Climate, Climate finance, Climate Policy, coal company, country cost, Environment, Financial Economics, financing policy, Global, Greenhouse gas emissions, investment cost, net benefit, net gain, Non-renewable resources, North America, Renewable energy, Valuation of Environmental Effects
IMF Working Paper — "The Great Carbon Arbitrage" by Tobias Adrian, Patrick Bolton, Alissa M. Kleinnijenhuis, June 1, 2022.
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