Mr. Christoph Duenwald, Mr. Yasser Abdih, Mrs. Kerstin Gerling, Vahram Stepanyan, Abdullah Al-Hassan, Gareth Anderson, Ms. Anja Baum, Mr. Sergejs Saksonovs, Lamiae Agoumi, Chen Chen, Mehdi Benatiya Andaloussi, Sahra Sakha, Faten Saliba, and Jesus Sanchez
Climate change is among humanity’s greatest challenges, and the Middle East and Central Asia region is on the frontlines of its human, economic, and physical ramifications. Much of the region is located in already difficult climate zones, where global warming exacerbates desertification, water stress, and rising sea levels. This trend entails fundamental economic disruptions, endangers food security, and undermines public health, with ripple effects on poverty and inequality, displacement, and conflict. Considering the risks posed by climate change, the central message of this departmental paper is that adapting to climate change by boosting resilience to climate stresses and disasters is a critical priority for the region’s economies.
Jean Chateau, Ms. Florence Jaumotte, and Gregor Schwerhoff
This paper discusses and analyzes various international mechanisms to scale up global action on climate mitigation and address the policy gap in this area. Despite the new commitments made at COP 26, there is still an ambition and a policy gap at the global level to keep temperature increases below the 2°C agreed in Paris. Avoiding the worst outcomes of climate change requires an urgent scaling up of climate policies. Recent policy proposals include the idea of common minimum carbon prices, which underlie the IMF’s international carbon price proposal (Parry, Black, and Roaf 2021) and the climate club proposal of the German government. While global carbon prices are not a new idea, the new elements are the use of carbon price floors—which allow countries to do more if they wish—and the differentiation of carbon price floors by level of development. In the absence of international coordination, countries with ambitious climate policies are considering introducing a border carbon adjustment mechanism to prevent domestic producers from being at a competitive disadvantage due to more ambitious domestic climate policies. An interesting question from the global perspective is whether border carbon adjustment would deliver substantial additional emissions reductions or incentivize other countries to join a carbon price floor agreement.
Ms. Era Dabla-Norris, Mr. James Daniel, Mr. Masahiro Nozaki, Cristian Alonso, Vybhavi Balasundharam, Mr. Matthieu Bellon, Chuling Chen, David Corvino, and Mr. Joey Kilpatrick
Climate change is one of the greatest challenges facing policymakers worldwide, and the stakes are particularly high for Asia and the Pacific. This paper analyzes how fiscal policy can address challenges from climate change in Asia and the Pacific. It aims to answer how policymakers can best promote mitigation, adaptation, and the transition to a low-carbon economy, emphasizing the economic and social implications of reforms, potential policy trade-offs, and country circumstances. The recommendations are grounded in quantitative analysis using country-specific estimates, and granular household, industry, and firm-level data.
Mr. Nicolas Arregui, Ms. Ruo Chen, Mr. Christian H Ebeke, Jan-Martin Frie, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Andreas Jobst, Louise Rabier, Mr. James Roaf, Ms. Anna Shabunina, and Mr. Sebastian Weber
This paper discusses sectoral policies needed to achieve the ambitious greenhouse gas (GHG) emissions reduction targets announced in the European Union’s Green Deal, complementing the companion paper “EU Climate Mitigation Policy”, which focuses on broader EU-level policies.
With total emissions nearly a quarter below their 1990 level, the EU has made important progress, but the new goals will require much stronger policy action. Moreover, progress has varied across sectors. Emissions from power and industry have fallen by about a third, buildings by a quarter and agriculture by a fifth – while transport emissions have risen. This paper argues that this divergence reflects differences in effective carbon prices, but also cost differences among the available abatement channels, market imperfections, and policy gaps. It discusses specific sectoral policies needed to address these factors and achieve the new emissions reduction goals.
Mr. Jiaqian Chen, Maksym Chepeliev, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Mr. James Roaf, Ms. Anna Shabunina, Dominique van der Mensbrugghe, and Mr. Philippe Wingender
This paper aims to contribute to the debate on the choice of policies to reach the more ambitious 2030 emission reduction goals currently under consideration. It provides an analysis of the macroeconomic and distributional impacts of different options to scale up the mitigation effort, and proposes enhancements to the existing EU policies. A key finding is that a well-designed package, consisting of more extensive carbon pricing across EU countries and sectors, combined with cuts in distortionary taxes and targeted green investment support, would allow the EU to reach the emission goals with practically no effects on aggregate income. To enhance the social and political acceptance of climate policies, part of the revenue from carbon pricing should be used to compensate the most vulnerable households and to support the transition of workers to greener jobs. A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU (“carbon leakage”). From a risk-reward perspective, the benefits of reducing the risk of extreme life-threatening climate events and the health benefits from lower air pollution clearly outweigh the costs of mitigation policies.