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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.
International Monetary Fund. Asia and Pacific Dept

changes) 4 , and then estimates the effects of different policies relative to the BAU using evidence (from empirical studies and other modelling results) on the price responsiveness of fuel use and the health impacts of air pollution exposure. 5 Incidence analysis is conducted by linking the policy-induced impacts on energy prices from the spreadsheet tool to an input-output model to trace the price impacts on different industries and consumer goods, while combining that with survey data on spending on energy and other products by different household groups in India

Ian W.H. Parry and Victor Mylonas

climate stabilization (ideally with lowest cost), for example, containing mean projected warming to 2°C (the official, though highly challenging, goal of the Paris Agreement) would require carbon prices of at least US$40–80 per ton by 2030 and $50–100 by 2030. 33 In light of the Paris Agreement, however, the more immediate concern for policymakers is implementing prices in line with their mitigation pledges ( Table 1 ), which requires country-level projections of fuel use and the future responsiveness of fuel use to carbon pricing. Based on the analysis below, Canada

Ian W.H. Parry, Mr. Chandara Veung, and Mr. Dirk Heine

(non-CO2) environmental damages by fossil fuel product from Parry et al. (2014) , and a simple spreadsheet model populated with fuel use, price, and tax/subsidy data, along with simple rules of thumb for the responsiveness of fuel use to carbon pricing. Results are provided for the top twenty CO 2 emitting countries, collectively accounting for 80 percent of current, energy-related, global CO 2 emissions. The main findings can be summarized as follows. As regards the first question, the nationally efficient CO 2 price is typically quite large, for example

Ian Parry

section and elsewhere in the paper) and caveats—the basic framework involves projecting sectoral emissions at the country level and using assumptions about the price responsiveness of fuel use to infer the emissions impacts of carbon pricing. Table 2 indicates emissions reductions if countries meet their Paris pledges and either just six parties to the Paris Agreement (China, India, the US, EU, UK and Canada) also participate in an ICPF or all G20 countries do . Scenarios are considered where advanced/EME countries are subject to price floors of $50 per ton each, or

Ian Parry and Karlygash Zhunussova

the global ambition and national policy gaps . This Climate Note presents an extensive quantitative assessment for both issues. The Note uses the Carbon Pricing Assessment Tool (CPAT), a streamlined spreadsheet-based model which projects, on a country-by-country basis for 175 countries, fossil fuel CO 2 emissions and the emissions, fiscal, economic, energy price, and distributional burden of carbon pricing and other commonly used mitigation instruments. CPAT is parameterized so that emissions projections, and the responsiveness of fuel use to pricing, are

Ian W.H. Parry and Victor Mylonas
The pan-Canadian approach to carbon pricing, announced in October 2016, ensures that carbon pricing applies throughout Canada in 2018, with increasing stringency over time to reduce emissions. Canadian provinces and territories have the flexibility to either implement an explicit price-based system—with a minimum price of CAN $10 per tonne of carbon dioxide equivalent in 2018, increasing to CAN $50 per tonne by 2022—or an equivalently scaled emissions trading system. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) incidence. The general conclusion is that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself appears well short of what will be needed by 2030 for Canada’s Paris Agreement pledge.
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. European Dept.

pricing (and other policies) on fuel use depends on their proportionate impact on future energy prices and the price responsiveness of fuel use—price elasticities are between -0.3 to -0.5 based on empirical evidence and results from energy models. There is, however, inherent uncertainty surrounding emissions projections and the responsiveness of emissions to pricing, particularly for large carbon prices, given, for example, that the availability and adoption of future emissions-saving technologies is difficult to accurately project. 25 This finding holds true

Ian W.H. Parry, Victor Mylonas, and Nate Vernon
Spreadsheet models are used to assess the environmental, fiscal, economic, and incidence effects of a wide range of options for reducing fossil fuel use in India. Among the most effective options is ramping up the existing coal tax. Annually increasing the tax by INR 150 ($2.25) per ton of coal from 2017 to 2030 avoids over 270,000 air pollution deaths, raises revenue of 1 percent of GDP in 2030, reduces CO2 emissions 12 percent, and generates net economic benefits of approximately 1 percent of GDP. The policy is mildly progressive and (at least initially) imposes a relatively modest cost burden on industries.