G20 High Level Tax Symposium

IMF News, July 9, 2021

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To keep global warming below 2oC, global greenhouse gas emissions must be reduced by one quarter to one half, over the next decade.
The Paris agreement needs robust complementary measures; finance ministries and tax authorities have a key role to play.

Broadly defined to include undercharging for supply costs, global warming, local pollution and other environmental costs, subsidies are equivalent to over $5 trillion dollars annually.
Phasing out these subsidies creates economic, health and climate benefits.

IMF research: the emission cuts needed to meet the objectives of the Paris agreement will require a powerful price signal, predictably, increasing carbon price to reach at least $75 per ton by 2030.
Current global average carbon price is only $3 per ton.
The distance to $75 per ton is far too big to leave it to individual countries moving up their own.

IMF staff has proposed an international carbon price floor to help achieve the global emissions reductions needed over the next decade.
Key design features noted:
- Could comprehensively cover emissions and focus initially on a small number of large emitting countries to facilitate negotiation.
- Could be designed pragmatically to allow different minimum prices based on development level.
- Could accommodate different national policy approaches, as long as they have equivalent emission impact.
Rationale: an international floor price would also address competitiveness concerns that are giving rise to border carbon adjustments in some countries.
Limitation noted: only a small portion of carbon emissions are embodied in traded products, so border carbon adjustments are unlikely on their own to significantly scale-up global mitigation.

Recognizes carbon taxes are the most efficient way to price carbon, but domestic developments and political economy considerations may necessitate trading schemes or regulatory measures that translate into an implicit carbon price.
Envisaged comprehensive approach includes:
- Instruments to reinforce mitigation incentives at the sectoral level, like feebates and regulations together with pricing or proxy schemes for emissions in sectors like forestry and agriculture.
- Public investment in clean technology and infrastructure networks and financial market reforms like climate risk disclosures to complement measures to scale up private investment.
- Use of revenues raised or saved through price reforms to boost the economy and provide just transition assistance for vulnerable households, workers, and regions.

Finance ministers and tax authorities present (physically and online) are reminded they hold the policy levers that can incentivize the required actions.
Expectation expressed that participants will use these levers wisely to protect the planet and secure the future for generations to come.

Opening Remarks by IMF Managing Director Kristalina Georgieva. July 9, 2021.