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Cover IMF Working Papers
How Much Carbon Pricing is in Countries’ Own Interests? The Critical Role of Co-Benefits
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.
Keywords:
WP; price; net; pricing; carbon pricing; co-benefits; air pollution; fuel taxes; top twenty emitters; fuel price elasticity; uniform price; price responsiveness; welfare cost; cross-price effect; price-gap concept; net benefit; responsiveness of fuel use; mitigation cost; countries price carbon; Carbon tax; Greenhouse gas emissions; Non-renewable resources; Public expenditure review; Fuel prices; Global; Africa
Cover IMF Working Papers
How Much Carbon Pricing is in Countries’ Own Interests? The Critical Role of Co-Benefits
Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine

subsidies were between $92 and $193 per ton of CO 2 in 2010. An important caveat about the subsidies, however, is that to the extent they reflect differences in domestic and international fuel prices they vary from year to year with volatility in the latter. Moreover, the price-gap concept of a subsidy generally favored by economists is not accepted by all governments, especially if domestic prices recover domestic supply costs (the implications of ignoring subsidies are noted below). Figure 5. Pre-Existing Fuel Taxes/Subsidies, 2010 ($ per ton CO2) Source

Keywords:
WP; price; net; pricing; consumer fuel price; economic activity