{
  "title": "Climate Change Mitigation Will Cause Large Adjustments in Current Account Balances",
  "publication": "IMF Blog, August 16, 2022",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2022/08/16/climate-change-mitigation-will-cause-large-adjustments-in-current-account-balances",
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  "summary": "A climate mitigation policy mix of carbon taxes, green subsidies, and infrastructure investment could reduce global balances by a quarter by 2027. But only if countries coordinate their response.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- A climate mitigation policy mix of carbon taxes, green subsidies, and infrastructure investment could reduce global balances by a quarter by 2027.\n- Analysis is drawn from the IMF’s External Sector Report and presented as the IMF’s Chart of the Week.\n- Authors: Rudolfs Bems, Luciana Juvenal — August 16, 2022."
    },
    {
      "heading": "Key findings",
      "content": "- The carbon tax has the biggest effect on current account balances.\n- By discouraging energy usage, economic activity is likely to shift toward more labor-intensive, low-carbon sectors.\n- Global interest rates are likely to fall in the longer term because of the decline in investment in fossil fuels, following an initial infrastructure investment-induced rise.\n- Current account effects will differ across countries:\n  - Greener economies: different (generally smaller) adjustments.\n  - More fossil-fuel-dependent economies: current account balances may increase because of the sharp fall in investment in carbon-intensive sectors.\n- The shift in global capital flows is likely toward greener advanced economies, imposing a disproportionate burden of economic adjustment on lower-income fossil-fuel-exporting developing countries, which historically have contributed little to carbon emissions."
    },
    {
      "heading": "Mechanisms and scenarios",
      "content": "- Policy mix components considered:\n  - Carbon taxes (largest single driver of current account changes).\n  - Green subsidies.\n  - Infrastructure investment (initially raises interest rates through investment demand; longer-term effect lowers interest rates via reduced fossil-fuel investment).\n- Economic reallocation:\n  - Reduced energy usage → increased activity in labor-intensive, low-carbon sectors.\n  - Reduced investment in carbon-intensive sectors → capital reflows toward greener economies."
    },
    {
      "heading": "Distributional implications",
      "content": "- Capital flows shift toward greener advanced economies.\n- Lower-income fossil-fuel-exporting developing countries face a disproportionate adjustment burden despite historically low emissions contributions.\n- Outcomes vary by country depending on fossil fuel dependency and green sector readiness."
    },
    {
      "heading": "Policy recommendations and coordination",
      "content": "- Increased burden sharing in mitigation efforts could help limit the shift in capital flows. This includes:\n  - Higher carbon taxes and emission cuts for advanced economies.\n  - Accelerating investment in green energy and renewables in developing countries via increased financing and technology transfers from advanced countries.\n- Emphasis: Both advanced and developing countries must participate in reducing emissions.\n- To succeed, policy coordination and burden-sharing arrangements will be key.\n\nRudolfs Bems and Luciana Juvenal — August 16, 2022\n\n---\n\n\n References\n\n- Chart of the Week\n- External Sector Report\n- https://www.imf.org/wp-content/uploads/2022/08/RES-Climate-Ch1.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2022/08/16/climate-change-mitigation-will-cause-large-adjustments-in-current-account-balances"
    }
  ],
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    "Authors: Rudolfs Bems, Luciana Juvenal",
    "Published: August 16, 2022",
    "A climate mitigation policy mix of carbon taxes, green subsidies, and infrastructure investment could reduce global balances by a quarter by 2027.",
    "Analysis is drawn from the IMF’s External Sector Report and presented as the IMF’s Chart of the Week.",
    "Authors: Rudolfs Bems, Luciana Juvenal — August 16, 2022.",
    "The carbon tax has the biggest effect on current account balances.",
    "By discouraging energy usage, economic activity is likely to shift toward more labor-intensive, low-carbon sectors.",
    "Global interest rates are likely to fall in the longer term because of the decline in investment in fossil fuels, following an initial infrastructure investment-induced rise.",
    "Current account effects will differ across countries:",
    "The shift in global capital flows is likely toward greener advanced economies, imposing a disproportionate burden of economic adjustment on lower-income fossil-fuel-exporting developing countries, which historically have contributed little to carbon emissions.",
    "Policy mix components considered:",
    "Economic reallocation:",
    "Capital flows shift toward greener advanced economies.",
    "Lower-income fossil-fuel-exporting developing countries face a disproportionate adjustment burden despite historically low emissions contributions.",
    "Outcomes vary by country depending on fossil fuel dependency and green sector readiness.",
    "Increased burden sharing in mitigation efforts could help limit the shift in capital flows. This includes:",
    "Emphasis: Both advanced and developing countries must participate in reducing emissions.",
    "To succeed, policy coordination and burden-sharing arrangements will be key.",
    "[Chart of the Week](https://www.imf.org/en/News/Chart-of-the-week)",
    "[External Sector Report](https://www.imf.org/en/Publications/ESR/Issues/2022/08/04/2022-external-sector-report)",
    "[https://www.imf.org/wp-content/uploads/2022/08/RES-Climate-Ch1.jpg](https://www.imf.org/wp-content/uploads/2022/08/RES-Climate-Ch1.jpg)"
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