Reducing carbon emissions from burning fossil fuels like coal, oil, and gas won’t happen without some prodding. Just as you might pick the cheaper of two similar items when shopping, people are less likely to choose fossil fuels with an added environmental cost if cleaner alternatives are cheaper.
Pricingcarbon is essentially calculating the cost of releasing another ton of carbon dioxide (CO ) into the air. The use of fossil fuels may create jobs and commerce right now, but they enjoy an implicit subsidy: users don’t have to pay for environmental damages. In economic
concentrations of GHGs, which are hard to reduce.
Understanding the interplay among these three challenges is crucial: failing to meet any of them would be extremely costly. Some synergies are of particular importance.
In the short and medium terms, pricingcarbon, through a carbon market or taxation, can generate much-needed revenue and ease public deficits. Further, low-carbon-infrastructure investment during a global slowdown has the advantage of drawing on underused resources, reducing the risk of crowding out other important investments.
In the longer
Mrs. Mai Farid, Mr. Michael Keen, Mr. Michael G. Papaioannou, Ian W.H. Parry, Ms. Catherine A Pattillo, and Anna Ter-Martirosyan
This paper discusses the implications of climate change for fiscal, financial, and macroeconomic policies. Most pressing is the use of carbon taxes (or equivalent trading systems) to implement the emissions mitigation pledges submitted by 186 countries for the December 2015 Paris Agreement while providing revenue for lowering other taxes or debt. Carbon pricing in developing countries would effectively mobilize climate finance, and carbon price floor arrangements are a promising way to coordinate policies internationally. Targeted fiscal measures that are tailored to national circumstances and robust across climate scenarios are needed to counter private sector under-investment in climate adaptation. And increased disclosure of carbon footprints, stress testing of asset values, and greater proliferation of hedging instruments, will facilitate low-emission investments and climate risk diversification through financial markets.