## Why Countries Must Cooperate on Carbon Prices

_IMF Blog, May 19, 2022_

## Source details

**Canonical URL:** [Why Countries Must Cooperate on Carbon Prices](https://www.imf.org/en/blogs/articles/2022/05/19/blog-why-countries-must-cooperate-on-carbon-prices)

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## Bibliographic details
- Authors: Jean Chateau, Florence Jaumotte, Gregor Schwerhoff
- Published: May 19, 2022

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### Overview
- An international carbon price floor (ICPF) is proposed to speed the world’s transition to green energy without compromising countries’ competitiveness.
- The proposal calls for the world’s largest emitters to pay a floor price of $25-$75 per ton of carbon depending on their level of economic development.
- The ICPF would be phased in by 2030 and can be implemented alongside alternative policies (regulations) that achieve at least the same emissions reductions as the carbon price floor.

### Key findings
- An ICPF introduced by all countries simultaneously—and with the same tiered price floors based on income level—would:
  - Reduce emissions sufficiently to accomplish the 2-degree target.
  - Be the only feasible option out of all those considered in the underlying staff paper to prevent the planet from heating to dangerously high temperatures.
  - Have only a small impact on global economic growth—provided countries also invest in low-carbon energy.

### Economic impacts and distributional effects
- Estimated global impact:
  - The ICPF would reduce global gross domestic product by 1.5 percent by 2030 relative to what it would have been in the absence of the price floor.
  - The world’s poorest countries would see a much smaller slowdown: 0.6 percent by 2030.
- The proposal argues this is a price worth paying to avoid the far larger costs of failing to curb carbon emissions, described as "many trillions of dollars" in a recent United Nations Intergovernmental Panel on Climate Change report.

### Differentiation and fairness
- The ICPF allocates transition costs according to differentiated responsibilities through tiered carbon price floors:
  - $25 per ton of carbon for low-income countries.
  - $50 per ton of carbon for middle-income countries.
  - $75 per ton of carbon for high-income countries.
- These are floor prices; many high-income countries may set higher prices to meet ambitious nationally determined contributions (NDCs).
- For many middle- and low-income countries, the floors are higher than implied by their NDCs, indicating a need to strengthen their contributions to limit temperature increases.

### Competitiveness, border measures, and international cooperation
- In the absence of a global agreement, high-income countries have considered border carbon adjustments (BCAs) to protect domestic industry.
- The study confirms previous work showing that BCAs:
  - Can protect energy-intensive and trade-exposed industries.
  - Do not incentivize enough emissions reductions to achieve global temperature goals because they only tax exported goods from countries without a domestic carbon tax.
- A simultaneous and differentiated ICPF would remove the need for high-income countries to impose BCAs:
  - With all country groups acting together, high-income countries would suffer no major losses to competitiveness.
  - Because goods from middle- and low-income countries are typically more carbon-intensive, the lower carbon price and higher carbon intensity tend to offset one another, so a given good would require similar carbon payments across income groups.

### Policy recommendation and rationale
- Implement an international carbon price floor, tiered by income level ($25, $50, $75 per ton), introduced simultaneously by all countries and phased in by 2030.
- Complement the price floor with investment in low-carbon energy to limit GDP costs and accelerate the green transition.
- Strengthen NDCs for middle- and low-income countries to ensure global temperatures remain in check.

*Source: Why Countries Must Cooperate on Carbon Prices (May 19, 2022) — Jean Chateau, Florence Jaumotte, Gregor Schwerhoff*

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## References

- [a paper last year](https://www.imf.org/en/Publications/staff-climate-notes/Issues/2021/06/15/Proposal-for-an-International-Carbon-Price-Floor-Among-Large-Emitters-460468)
- [recent staff paper](https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2022/03/16/Economic-and-Environmental-Benefits-from-International-Cooperation-on-Climate-Policies-511562)
- [https://www.imf.org/wp-content/uploads/2022/05/FINAL-Climate-ICPF-chart.jpg](https://www.imf.org/wp-content/uploads/2022/05/FINAL-Climate-ICPF-chart.jpg)

_Source: https://www.imf.org/en/blogs/articles/2022/05/19/blog-why-countries-must-cooperate-on-carbon-prices_