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Abstract

Although the future extent and effects of global climate change remain uncertain, the expected damages are not zero, and risks of serious environmental and macroeconomic consequences rise with rising atmospheric greenhouse gas concentrations. Despite the uncertainties, reducing emissions now makes sense, particularly by using flexible policy approaches that can adjust as further scientific evidence accumulates. At the same time, historically high debt-to-GDP levels in the United States (and other countries), along with rising health care and social security spending, and calls to reform personal and in particular capital income taxes, suggest that new revenue sources (in addition to spending cuts) are an inevitable part of the fiscal future. Carbon taxes help to address both of these challenges.

Ian W.H. Parry

Finance & Development, June 2019, The IMF at 75

Ian W.H. Parry

Finance & Development, June 2019, The IMF at 75

Ian W.H. Parry

Abstract

Carbon pricing policies (carbon taxes and emissions trading systems) are easily the best instruments on the grounds of effectiveness, cost-effectiveness, and promoting clean technology investments.

Ian W.H. Parry

Abstract

Market-based instruments like carbon taxes are potentially the most effective policies for reducing energy-related CO2 emissions. They do this by cutting the demand for fossil fuels and making it more attractive to use zero-carbon fuels like renewables.

Ian W.H. Parry
The United States has pledged to become carbon neutral by 2050, meet sectoral objectives (e.g., for carbon free power, electric vehicles) and encourage greater mitigation among large emitting countries and of international transportation emissions. Fiscal policies at the national, sectoral, and international level could play a critical role in implementing these objectives, along with investment, regulatory, and technology policies. Fiscal instruments are cost-effective, can enhance political acceptability, and do not worsen, or could help alleviate, budgetary pressures. Domestically, a fiscal policy package could contain a mix of economy-wide carbon pricing and revenue-neutral feebates (i.e., tax-subsidy schemes) with the latter reinforcing mitigation in the transport, power, industrial, building, forestry, and agricultural sectors. Internationally, a carbon price floor among large emitters (with flexibility to implement equivalent measures) could effectively scale up global mitigation, while levies/feebates offer a practical approach for reducing maritime and aviation emissions.
Ian W.H. Parry

The United States has pledged to become carbon neutral by 2050, meet sectoral objectives (e.g., for carbon free power, electric vehicles) and encourage greater mitigation among large emitting countries and of international transportation emissions. Fiscal policies at the national, sectoral, and international level could play a critical role in implementing these objectives, along with investment, regulatory, and technology policies. Fiscal instruments are cost-effective, can enhance political acceptability, and do not worsen, or could help alleviate, budgetary pressures. Domestically, a fiscal policy package could contain a mix of economy-wide carbon pricing and revenue-neutral feebates (i.e., tax-subsidy schemes) with the latter reinforcing mitigation in the transport, power, industrial, building, forestry, and agricultural sectors. Internationally, a carbon price floor among large emitters (with flexibility to implement equivalent measures) could effectively scale up global mitigation, while levies/feebates offer a practical approach for reducing maritime and aviation emissions.