By - Jim Vess

IMF calls for $75-a-ton carbon tax, says current carbon-cutting measures are inadequate

Energize Weekly, October 23, 2019

An International Monetary Fund (IMF) analysis says that a $75-a-ton tax on carbon emissions or a comparable fiscal policy needs to be in place by 2030 to limit global warming to 2 degrees centigrade, though it will lead to sharp increases in electricity and gasoline prices.

“Policy makers need to act urgently to mitigate climate change and thus reduce its damaging and deadly effects,” the IMF Fiscal Monitor report said. “Action to date has been inadequate.”

Limiting the temperature increase would require ambitious action such as an immediate tax that would rise to $75 for each ton of carbon dioxides emitted by 2030. The aim is to hold global temperature increase to 2 degrees Celsius over preindustrial levels.

Thirteen countries already have carbon taxes ranging from $3 a ton in Japan to $127 a ton in Sweden. Still, the global average price for a ton of carbon is $2, according to the World Bank.

A $75-a-ton tax would over 10 years lead to a 45 percent rise in electricity prices and a 15 percent rise in gasoline prices for households compared with a baseline of taking no action, the IMF said.

It would also cut emissions by 35 percent for the G20 countries, the world’s largest economies.

“The revenue from such a tax,” the IMF said, “could be redistributed, for example, to assist low-income households, support disproportionately affected workers or communities (for example, coal-mining areas), cut other taxes, fund investment in clean energy infrastructure or United Nations Sustainable Development Goals, reduce fiscal deficits, or pay an equal dividend to the whole population.”

If it is not possible politically to enact a carbon tax, the IMF said policy makers should look at emission-trading systems – using emission allocation permits and trading – which could be “equally effective.”

Other alternatives include regulations focused on emission rates and energy efficiency and “feebates,” a system of fees and rebates on products of activities.

The IMF, however, said a carbon tax or trading system would be the most efficient approach. “Carbon taxes and emission trading systems lead people and firms both to shift to greener energy and to cut back on the use of energy-consuming products or capital,” the agency said.

One place to begin would be with setting a floor price for carbon among the largest emitting nations, offering both a transparent, level and equal approach for participating countries.

If the top three carbon-emitting nations – China, the United States and India – participated in a carbon-pricing floor agreement, it would cover more than half of global emissions, the IMF said.

“For the IMF climate change is something that has macroeconomic implications,” Paolo Mauro, deputy director in the IMF Fiscal Affairs Department, said in an interview with Bloomberg News. “Fiscal policies can be really key to fighting climate change.”

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