## Climate Change: How To Price Paris

_IMF Blog, January 11, 2016_

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**Canonical URL:** [Climate Change: How To Price Paris](https://www.imf.org/en/blogs/articles/2016/01/11/climate-change-how-to-price-paris)

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## Bibliographic details
- Authors: Vitor Gaspar, Michael Keen, Ian Parry
- Published: January 11, 2016

---

### Overview and context
- Publication: Vitor Gaspar, Michael Keen, Ian Parry — January 11, 2016.
- The Paris Agreement establishes country-level emission reduction pledges and timetables submitted by 186 countries and procedures for updating and evaluating progress.
- Central argument: "The crucial thing is to price energy right" to make the Paris Agreement deliverable.

### Magnitude of energy underpricing
- IMF estimates that energy prices undercharged the true costs of fossil fuel energy use by a total of $5.3 trillion (or 6½ percent of Global GDP) in 2015.
- Global warming accounts for around 25 percent of the global subsidies identified.
- The remaining 75 percent of the subsidies reflect:
  - Health impacts from exposure to outdoor air pollution;
  - Undercharging for local side effects of motor vehicles (e.g., congestion);
  - Energy supply costs; and
  - General consumption taxes.

### Why pricing carbon matters
- Firms and households are not charged for the environmental consequences of their emissions, most importantly carbon dioxide (CO2) from burning fossil fuels.
- Pricing carbon:
  - Engages reductions in energy consumption;
  - Encourages shifts from dirtier to cleaner energy generation;
  - Encourages innovation and technological change.
- A robust, predictable emission price is critical to redirect technological change toward low-emission investments.

### Preferred instruments and revenue use
- Taxation is generally presented as the best way to implement carbon pricing.
  - Recommendation: extend fuel excises to include carbon charges and apply similar charges to other petroleum products, coal, and natural gas.
- If emissions trading systems are used, they should be designed to look like taxes by:
  - Auctioning allowances to raise revenue;
  - Including price floors and ceilings.
- Suggested use of revenues:
  - Boost the economy by cutting taxes on labor and capital that deter work effort and investment, offsetting the drag from higher energy prices.

### Current coverage and pricing status
- About 40 national and over 20 sub-national governments have adopted some form of carbon pricing.
- Existing schemes cover about 12 percent of global emissions (with coverage expected to double when China prices industrial emissions in 2017).
- Typical prices under current schemes are modest — around $10 per ton or less.
- Countries need to transition to greater coverage of emissions and to prices better aligned with their mitigation commitments.

### International coordination options
- As national pricing systems proliferate, international coordination can enhance effectiveness.
- One natural mechanism: carbon price floor arrangements (analogous to tax minima for excises and value added taxes in the European Union).
  - Benefits: provide protection against competitiveness impacts and allow countries to set prices above the floor if desired.

### Technology, innovation, and incentives
- Renewables and green technologies require firms to be rewarded for adopting them.
- The most effective way to create those rewards is to price carbon correctly.
- Relying on technological progress alone, without appropriate carbon pricing incentives, is likened to "banking on miracles."

### Key policy recommendations
- Get energy prices right at the national level to capture domestic benefits from reduced local pollution and other externalities.
- Implement carbon pricing, preferably via taxation or trading systems that function like taxes (auctioning, price floors/ceilings).
- Use carbon pricing revenues to reduce distortionary taxes on labor and capital.
- Expand coverage of carbon pricing schemes and increase prices to align with mitigation commitments.
- Consider international coordination via carbon price floors to manage competitiveness and enable higher national prices.

_Article: Climate Change: How To Price Paris — Vitor Gaspar, Michael Keen, Ian Parry — January 11, 2016._

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## Content in this bundle

- **气候变化：巴黎协议下的能源定价; iMFdirect博客; 2016 年 1 月 11 日**
  - [气候变化：巴黎协议下的能源定价; iMFdirect博客; 2016 年 1 月 11 日 (Markdown version)](/external/chinese/np/blog/2016/011316c.pdf.md){rel="alternate" type="text/markdown"}
  - [气候变化：巴黎协议下的能源定价; iMFdirect博客; 2016 年 1 月 11 日 (PDF)](/external/chinese/np/blog/2016/011316c.pdf){rel="external" type="application/pdf"}

---

## References

- [عربي](http://blog-montada.imf.org/?p=3960)
- [paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=43484.0)
- [$5.3 trillion](http://www.imf.org/external/np/fad/subsidies/index.htm)
- [Pricing carbon](http://blogs.imf.org/2014/09/17/carbon-pricing-good-for-you-good-for-the-planet/)
- [bottom line](http://blogs.imf.org/2015/12/02/the-price-of-oil-and-the-price-of-carbon/)
- [here.](http://www.imf.org/external/np/fad/environ/)

_Source: https://www.imf.org/en/blogs/articles/2016/01/11/climate-change-how-to-price-paris_