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International Monetary Fund. Fiscal Affairs Dept.


This report emphasizes the environmental, fiscal, economic, and administrative case for using carbon taxes, or similar pricing schemes such as emission trading systems, to implement climate mitigation strategies. It provides a quantitative framework for understanding their effects and trade-offs with other instruments and applies it to the largest advanced and emerging economies. Alternative approaches, like “feebates” to impose fees on high polluters and give rebates to cleaner energy users, can play an important role when higher energy prices are difficult politically. At the international level, the report calls for a carbon price floor arrangement among large emitters, designed flexibly to accommodate equity considerations and constraints on national policies. The report estimates the consequences of carbon pricing and redistribution of its revenues for inequality across households. Strategies for enhancing the political acceptability of carbon pricing are discussed, along with supporting measures to promote clean technology investments.

International Monetary Fund. Asia and Pacific Dept

. Figure 4. Natural Disasters and Transition Exposure 18. Stock market valuations in Japan do not appear to reflect firmsemission intensities . For companies in the TOPIX stock index, there is little difference in the ratio of stock price to earnings (P/E), a common valuation measure, between firms with high and low GHG emissions ( Figure 5.1 ). This suggests limited market attention to the risks high emission firms could face in the transition to a low carbon economy, for example, through carbon pricing and regulation. There is also no evidence that investors

Mr. Adil Mohommad
The employment impact of environmental policies is an important question for policy makers. We examine the effect of increasing the stringency of environmental policy across a broad set of policies on firms’ labor demand, in a novel identification approach using Worldscope data from 31 countries on firm-level CO2 emissions. Drawing on evidence from as many as 5300 firms over 15 years and the OECD environmental policy stringency (EPS) index, it finds that high emission-intensity firms reduce labor demand upon impact as EPS is tightened, whereas low emission-intensity firms increase labor demand, indicating a reallocation of employment. Moreover, tightening EPS during economic contractions appears to have a positive effect on employment, other things equal. Quantifications exercises show modest positive net changes in employment for market-based policies, and modest negative net changes for non-market policies (mainly emission quantity regulations) and for the combined aggregate EPS. Within market-based policies, the percent decline in employment in high-emission firms (correspondingly the increase in low-emission firms) for a unit change in a policy index is smallest (largest) for trading schemes (“green” certificates, and “white” certificates)—although stringency is not comparable across indices. Finally, the employment effects of EPS are not persistent.
Mr. Adil Mohommad

of emission-intensity in each country-year. A firm is coded as high-emission intensity ( d c = 1) if its emissions-to-employment ratio exceed the median of the country-year distribution in any year for which it reports data. Thus, emission-intensity is a time-invariant property of the firm in this setup. Though firmsemissions vary from year-to-year, the time-invariance of the CO2 emission intensity indicator variable does not appear to be problematic, given that the levels of emissions among low and high emission firms remain quite different. The emissions

Mr. Michael Keen and Benjamin Jones

(that is, the upper limits on emissions under permit trading schemes like the ETS) may be unwise. The point remains, nonetheless, that lower private costs of mitigation mean that, if anything, emission targets should be tighter rather than looser. More important, relatively low energy prices present opportunities for fundamental pricing reform . While there will of course be opposition, even temporarily lower prices of oil and other energy sources should increase the political palatability of firmer emissions pricing. Countries with controlled fuel prices, in

Mr. Per G. Fredriksson, Mr. Muthukumara Mani, and Richard Damania
This paper examines the reasons why corruption and policy distortions tend to exhibit a high degree of persistence in certain regimes. We identify circumstances under which a firm seeks to evade regulations by (1) bribing of local inspectors, and (2) lobbying high-level government politicians to resist legal reforms designed to improve judicial efficiency and eliminate corruption. The analysis predicts that in politically unstable regimes, the institutions necessary to monitor and enforce compliance are weak. In such countries, corruption is more pervasive and the compliance with regulations is low. The empirical results support the predictions of the model.
International Monetary Fund. Monetary and Capital Markets Department

, respectively The share of passive funds was higher for funds with a climate focus (22 percent) compared with conventional funds and other sustainable funds (about 13 percent). Fees of sustainable funds were also slightly higher than those of their conventional peers. 15 In general, ESG scores—as well as the environmental pillar score—reflect a range of issues much broader than those related to the climate transition. Consistent with ESG scores not fully capturing climate transition efforts, Elmalt, Igan, and Kirti (2021) show that firmsemissions reductions are

Mr. Michael Keen and Benjamin Jones
Negotiations toward a successor to the Kyoto Protocol on climate change have come to a critical point, and domestic climate policies are being developed, as the world seeks to recover from the deepest economic crisis for decades and looks for new sources of sustainable growth. This position paper considers the challenge posed by these two policy imperatives: how to exit from the crisis while developing an effective response to climate change. Blending the objectives of a sustained recovery and effective climate policies presents both challenges and opportunities. Although there are potential “win-win” spending measures conducive to both, the more fundamental linkages and synergies lie in the broader strategies adopted toward each other. Greater climate resilience can promote macroeconomic stability and alleviate poverty; and carbon pricing, essential for mitigation, can contribute to the strengthening of fiscal positions that is expected to be needed in many countries. There are, nevertheless, also difficult trade-offs to face, notably in the somewhat greater caution now warranted in moving to more aggressive emissions pricing. However, the simple policy guidelines for addressing climate issues remain fundamentally unchanged; the need to deploy a range of regulatory, spending, and emissions pricing measures.
Jochen M. Schmittmann and Han Teng Chua
Green debt markets are rapidly growing while product design and standards are evolving. Many policymakers and investors view green debt as an important component in the policy mix to achieve the transition to a low carbon economy and ensure the pricing of climate risks. Our analysis contributes to the nascent literature on the environmental impact of green debt by documenting the CO2 emission intensity of corporate green debt issuers. We find lower emission intensities for green bond issuers relative to other firms, but no difference for green loan and sustainability-linked loan borrowers. Green bond, green loan, and sustainability-linked loan borrowers lower their emission intensity over time at a faster rate than other firms.