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Ian W.H. Parry and Mr. Philippe Wingender
Finland has pledged to cut net greenhouse gas emissions to zero by 2035 and has sectoral targets for deploying electric vehicles, phasing out coal generation, and oil-based space heating. Fiscal policies at the national and sectoral level could play a critical role in achieving these objectives. Carbon dioxide emissions are already priced significantly in Finland but prices vary substantially across fuels and sectors. The paper discusses a reform to both scale up, and progressively harmonize, pricing while using revenues to address equity issues. It also discusses the potential use of revenue-neutral feebate schemes to strengthen mitigation incentives for the transportation, industry, building, forestry, and agricultural sectors.
Ian W.H. Parry and Mr. Philippe Wingender

Copyright Page © 2021 International Monetary Fund WP/21/171 IMF Working Paper European Department Fiscal Policies for Achieving Finland’s Emission Neutrality Target Prepared by Ian Parry and Philippe Wingender 1 Authorized for distribution by Peter Dohlman June 2021 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate . The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or

International Monetary Fund. Asia and Pacific Dept

themselves, for example, through increased default risk of loan portfolios, lower values of assets, and higher insurance liabilities. Transition risks materialize, for example, through exposure to firms with business models and technology not in line with low carbon emissions. Japan’s 2050 carbon neutrality target will require radical changes in sectors such as automotive, energy, and cement. Some companies are unlikely to adapt fast enough and some assets may become stranded, while other firms could thrive through developing climate friendly business models and technology

© 2021 International Monetary Fund WP/21/171 IMF Working Paper European Department Fiscal Policies for Achieving Finland’s Emission Neutrality Target Prepared by Ian Parry and Philippe Wingender1 Authorized for distribution by Peter Dohlman June 2021 Abstract Finland has pledged to cut net greenhouse gas emissions to zero by 2035 and has sectoral targets for deploying electric vehicles, phasing out coal generation, and oil-based space heating. Fiscal policies at the national and sectoral level could play a critical role in achieving these objectives

Ian Parry

, EU, Canada, UK – conditional on achieving NDCs. Global $75 carbon tax starts at $15/ton, rising steadily from 2022 to 2030. Pathways assume energy-related national CO 2 emissions are reduced in proportion to total greenhouse gas emissions. COVID = coronavirus; NDCs = nationally determined contributions. Under the Paris Agreement countries are increasingly pledging emissions neutrality targets for midcentury… A total of 195 parties signed the Agreement and most submitted first-round mitigation pledges in their nationally determined contributions (NDCs), many

measures to level the playing field for clean technologies. Figure 1. Global Fossil Fuel CO2 Emissions Trends Source: IEA (2020), Fund staff estimates, IPCC (2018). 7. Canada has set aggressive targets to reduce carbon dioxide (CO2) and other GHGs . Key targets include: A goal (made legally binding by the tabled Canadian Net-Zero Emissions Accountability Act, if passed by Parliament) of zero net GHG emissions by 2050. 2 Other large emitters including the EU, Japan, Korea, UK and the US have also set carbon or GHG neutrality targets for 2050, while China

Ian W.H. Parry, Mr. Simon Black, and Nate Vernon
This paper provides a comprehensive global, regional, and country-level update of: (i) efficient fossil fuel prices to reflect their full private and social costs; and (ii) subsidies implied by mispricing fuels. The methodology improves over previous IMF analyses through more sophisticated estimation of costs and impacts of reform. Globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP, and are expected to rise to 7.4 percent of GDP in 2025. Just 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for undercharging for environmental costs and foregone consumption taxes (implicit subsidies). Efficient fuel pricing in 2025 would reduce global carbon dioxide emissions 36 percent below baseline levels, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths. Accompanying spreadsheets provide detailed results for 191 countries.
Ian W.H. Parry, Mr. Simon Black, and Nate Vernon

submitting revised mitigation pledges ahead of COP26 in November 2021—many have made substantial commitments for 2030 and have specified emissions neutrality targets for mid-century ( Table 1 , third and fourth columns). Meanwhile, local air pollution concentrations remain stubbornly high, often far above safe levels recommended by the World Health Organization (PM2.5 below 10 µg/m3), and air pollution causes substantial premature mortality in many countries ( Table 1 , fifth and sixth columns). Government debt, moreover, is now at historically high levels—mostly around 50

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.
International Monetary Fund. Asia and Pacific Dept

in the Ice for South Korean Coal? The need for International Engagement to Support South Korea’s Transition from Coal . E3G, Solutions for Our Climate . 1 Prepared by Ian Parry. The author is grateful to Andreas Bauer for very helpful comments and suggestions and to Khamal Clayton and Si Guo for assistance on data and policy background. 2 Ministry of Economy and Finance (2020) . 3 See Government of Korea (2016) . 4 The EU, Japan, U.K., and the U.S. have also set carbon neutrality targets for 2050, while China has announced this target