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Mr. David Coady, Ian W.H. Parry, Nghia-Piotr Le, and Baoping Shang
This paper updates estimates of fossil fuel subsidies, defined as fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations), for 191 countries. Globally, subsidies remained large at $4.7 trillion (6.3 percent of global GDP) in 2015 and are projected at $5.2 trillion (6.5 percent of GDP) in 2017. The largest subsidizers in 2015 were China ($1.4 trillion), United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies. Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.
Ian Parry

publicly available and IMF sources. International energy prices are projected forward using an average of different sources. Assumptions for fuel price responsiveness are chosen to be broadly consistent with empirical evidence and results from energy models (fuel price elasticities are typically taken to be between –0.5 and – 0.8). One caveat is that the model abstracts from the possibility of mitigation actions (beyond those implicit in recently observed fuel use) in the baseline, which is a common approach to provide clean comparisons of new mitigation policies to

Ian Parry and Karlygash Zhunussova

Data on energy taxes, subsidies, and prices by energy product and country is compiled from publicly available and IMF sources, with inputs from proprietary and third-party sources. International energy prices are projected forward using an average of IEA (which are rising) and IMF (which are flat) projections for coal, oil, and natural gas prices. Assumptions for fuel price responsiveness are chosen to be broadly consistent with empirical evidence and results from energy models (fuel price elasticities are typically between about -0.5 and -0.8). Carbon emissions

International Monetary Fund. European Dept.

considered. The impacts of policies largely depend on how they affect fuel prices (explicitly or implicitly), fuel price responsiveness, and environmental impacts (carbon emissions, local air pollution mortality, etc.) of fuel use. Various data sources are used to parameterize the model, including the IMF (for GDP growth and domestic environmental impacts); the International Energy Agency (for fuel use data by sector); Dutch authorities (for current fuel prices and taxes); and empirical evidence/results from energy models for fuel price responsiveness and rates of

International Monetary Fund. European Dept.

price responsiveness and the air pollution mortality, road congestions, and other local environmental effects associated with fossil fuel use. 6, 7 The model incorporates the 19 largest emitters in the EU with the focus on 2030, the target year for meeting the Paris emissions pledge, considering that policies to 2020 are already set. 5. While the model is simplified, it approximates the results of more detailed models . The model readily accommodates a wide range of policies, countries, parameter scenarios, and computations of economic welfare impacts

Ian Parry, Mr. Simon Black, and Mr. James Roaf
Countries are increasingly committing to midcentury ‘net-zero’ emissions targets under the Paris Agreement, but limiting global warming to 1.5 to 2°C requires cutting emissions by a quarter to a half in this decade. Making sufficient progress to stabilizing the climate therefore requires ratcheting up near-term mitigation action but doing so among 195 parties simultaneously is proving challenging. Reinforcing the Paris Agreement with an international carbon price floor (ICPF) could jump-start emissions reductions through substantive policy action, while circumventing emerging pressure for border carbon adjustments. The ICPF has two elements: (1) a small number of key large-emitting countries, and (2) the minimum carbon price each commits to implement. The arrangement can be pragmatically designed to accommodate equity considerations and emissions-equivalent alternatives to carbon pricing. The paper discusses the rationale for an ICPF, considers design issues, compares it with alternative global regimes, and quantifies its impacts.
Ian W.H. Parry and Victor Mylonas

is also presented. A. Analytical Model An analytical model similar to the one used here has been previously applied to carbon pricing (and other policies) in China and India and the reader is referred to those studies 35 for mathematical specifics and typical parameter assumptions (e.g., for fuel price responsiveness and rates of technological change). The model distinguishes use of coal, natural gas, and a non-carbon fuel aggregate in power generation; gasoline and diesel use in road transport; and direct use of coal, natural gas, and oil in the household

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, Koralai Kirabaeva, Ian W.H. Parry, Mr. Mehdi Raissi, and Karlygash Zhunussova

fossil fuel CO2 emissions come from the power, industry, transportation, and building sectors respectively . The contribution to emissions reductions from each sector depends on: (i) the sector’s share in BAU emissions (much larger for power and transport than industry and buildings); and (ii) the responsiveness of emissions to pricing in that sector. In turn, the latter component depends on proportionate increases in fuel prices for that sector and fuel price responsiveness (which is broadly similar across fuels in IMF modelling). 24 38. A US$75 carbon price could