Climate mitigation
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Overview and strategic emphasis
- The Fund is intensifying work on carbon pricing and helping governments craft road maps to transition from brown economies to green economies.
- Carbon taxes are identified as one of the most powerful and efficient tools for mitigation.
- The Fund finds that large emitting countries need to introduce a carbon tax that rises quickly to $75 a ton in 2030, consistent with limiting global warming to 2°C or less.
- Carbon taxes should be implemented in a careful and growth-friendly fashion, with the tax system retooled in fair, creative, and efficient ways.
- Carbon tax revenues can be used to support low-income households and to support firms and households that choose green pathways.
Policy design, instruments, and complementarities
- The Fund emphasizes:
- Pricing instruments (carbon taxes or emission trading systems) as central to climate mitigation strategies.
- Alternative approaches such as “feebates” to impose fees on high polluters and give rebates to cleaner energy users when higher energy prices are politically difficult.
- Combining pricing with supportive measures to promote clean technology investments and to enhance political acceptability.
- The Fund notes that many countries subsidize fossil-fuel production and consumption rather than charging to discourage use.
- Energy taxation can be environmentally ineffective if taxes target electricity use or vehicle sales rather than emissions or traffic congestion.
- At the international level, the Fund calls for a carbon price floor arrangement among large emitters, designed flexibly to accommodate equity considerations and constraints on national policies.
Macroeconomic and distributional analysis
- The World Economic Outlook chapter “How to Mitigate Climate Change” (October 06, 2020) concludes that an initial green investment push combined with steadily rising carbon prices would deliver needed emission reductions with reasonable transitional global output effects and strengthen the global economy over the medium term.
- The Fiscal Monitor (October 16, 2019) provides a quantitative framework for understanding effects and trade-offs of carbon pricing and redistribution of revenues for inequality across households.
- The Mitigation Policies for the Paris Agreement: An Assessment for G20 Countries (August 30, 2018) highlights:
- G20 member countries account for about 80 percent of global emissions.
- Quantitative results underscore the strong case for comprehensive pricing, its small net costs or often net benefits (when domestic environmental gains are considered), and the potentially wide dispersion in emissions prices implied by countries’ mitigation commitments.
Selected country and sectoral findings (examples)
- Climate Mitigation Policy in Denmark (November 12, 2020):
- Discusses scaling up domestic carbon pricing, compensating households, and possibly combining pricing with a border carbon adjustment.
- Recommends revenue-neutral feebate schemes to strengthen mitigation incentives, particularly for transportation and agriculture, fisheries and forestry.
- Sectoral Policies for Climate Change Mitigation in the EU (September 16, 2020) and EU Climate Mitigation Policy (September 16, 2020):
- Discuss sectoral policies and macroeconomic and distributional impacts needed to achieve ambitious EU GHG reduction targets and to scale up mitigation effort.
- Canada’s Carbon Price Floor (March 8, 2018):
- Finds that welfare costs and implementation issues are manageable and pricing provides significant new revenues, though the floor price appears well short of what will be needed by 2030 for Canada’s Paris pledge.
- Reforming Energy Policy in India: Assessing the Options (May 3, 2017):
- Annually increasing the coal tax by INR 150 ($2.25) per ton of coal from 2017 to 2030:
- avoids over 270,000 air pollution deaths,
- raises revenue of 1 percent of GDP in 2030,
- reduces CO2 emissions 12 percent,
- generates net economic benefits of approximately 1 percent of GDP,
- is mildly progressive and initially imposes a relatively modest cost burden on industries.
- Carbon Taxation for International Maritime Fuels (September 11, 2018):
- Assesses a carbon tax as a key element of GHG mitigation policy for international maritime transport, discusses practical design issues, and presents impact estimates from an analytical maritime sector model.
Research, guidance, and policy recommendations
- The Fund’s body of work provides:
- Practical country-level guidance on fiscal policies for implementing climate strategies and tools to lay out trade-offs among policy options.
- Literature reviews of macroeconomic and financial policy roles in enabling large-scale low-carbon transitions.
- Analyses of the incidence, fiscal, environmental, and economic welfare impacts of pricing and other mitigation instruments.
- Strategies to enhance political acceptability discussed include revenue recycling to households, targeted compensation, and complementary policies (feebates, green investment pushes, and support for clean technology).
- Where direct price signals are politically difficult, the Fund highlights the role of sectoral and regulatory measures alongside pricing instruments.
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