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Mr. Simon Black, Jean Chateau, Ms. Florence Jaumotte, Ian W.H. Parry, Gregor Schwerhoff, Sneha D Thube, and Karlygash Zhunussova
To contain global warming to between 2°C and 1.5°C, global greenhouse gas emissions must be cut 25 to 50 percent below 2019 levels by 2030. Even if fully achieved, current country pledges would cut global emissions by just 11 percent. This Note presents illustrative options for closing this ambition gap equitably and discusses their economic impacts across countries. Options exist to accelerate a global just transition in this decade, involving greater emission reductions by high-income countries and climate finance, but further delays in climate action would put 1.5°C beyond reach. Global abatement costs remain low under 2°C-consistent scenarios, with burdens rising with income levels. With efficient policies of carbon pricing with productive revenue use, welfare costs become negative when including domestic environmental co-benefits, before even counting climate benefits. GDP effects from global decarbonization remain uncertain, but modeling suggests they exceed abatement costs especially for carbon-intensive and fossil-fuel-exporting countries. Ratcheting up climate finance can help make global decarbonization efforts more progressive.
Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine
This paper calculates, for the top twenty emitting countries, how much pricing of carbon dioxide (CO2) emissions is in their own national interests due to domestic co-benefits (leaving aside the global climate benefits). On average, nationally efficient prices are substantial, $57.5 per ton of CO2 (for year 2010), reflecting primarily health co-benefits from reduced air pollution at coal plants and, in some cases, reductions in automobile externalities (net of fuel taxes/subsidies). Pricing co-benefits reduces CO2 emissions from the top twenty emitters by 13.5 percent (a 10.8 percent reduction in global emissions). However, co-benefits vary dramatically across countries (e.g., with population exposure to pollution) and differentiated pricing of CO2 emissions therefore yields higher net benefits (by 23 percent) than uniform pricing. Importantly, the efficiency case for pricing carbon’s co-benefits hinges critically on (i) weak prospects for internalizing other externalities through other pricing instruments and (ii) productive use of carbon pricing revenues.
Mr. Simon Black, Koralai Kirabaeva, Ian W.H. Parry, Mr. Mehdi Raissi, and Karlygash Zhunussova
This paper discusses a comprehensive strategy for implementing Mexico’s climate mitigation commitments. Progressively increasing carbon prices from current levels of US$3 per ton to US$75 per ton by 2030 would achieve Mexico’s mitigation pledges, while raising annual revenues of 1.8 percent of GDP and cumulatively averting 11,600 deaths from local air pollution. The carbon price would raise fossil fuel and electricity prices, imposing burdens of 2.7 percent of consumption on the average Mexican household. However, recycling carbon pricing revenues would offset most of this burden, and targeted transfers could make the reform pro-poor and pro-equity. Additionally, the economic efficiency costs of carbon pricing (0.3 percent of GDP in 2030) are more than offset by local air pollution and other domestic environmental benefits (before even counting climate benefits). Mexico would need a more ambitious 2030 target if it were to follow many other countries in adopting a midcentury ‘net-zero’ emissions target. To enhance the effectiveness of the mitigation strategy, carbon pricing can be reinforced with sectoral instruments, such as feebates in the transport, power, industry, building, forestry, extractive, and agricultural sectors. Complementary policies are also needed to support public investment in the clean energy transition.
Mr. Simon Black, Jean Chateau, Ms. Florence Jaumotte, Ian W.H. Parry, Gregor Schwerhoff, Sneha D Thube, and Karlygash Zhunussova

. These domestic co-benefits are especially large in MICs (valued at 1.3 percent of GDP) where local air pollution is a major problem. Climate benefits are not estimated here at the domestic level, but at the global level would swamp abatement costs. That is, the costs of action are small relative to the costs of inaction. Global impacts on GDP vary between a reduction relative to baseline in 2030 of 0.6 and 1.5 percent depending on effort distribution and revenue recycling. The midpoint is 1.0 percent globally, equivalent to around 0.1 percentage point reduction in

Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine

fully internalized through other pricing policies, again there are potentially significant co-benefits to the extent that carbon charges reduce vehicle use. The potential for co-benefits suggests that countries need not wait on internationally coordinated efforts if some carbon mitigation is in their own national interests—that is, the domestic environmental benefits exceed the CO 2 mitigation costs, leaving aside climate benefits . These considerations raise three important questions for policy. First, what scale of CO 2 pricing is in countries’ own