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Political Science > Environmental Policy

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Cover Staff Climate Notes
Policies to Foster Green FDI: Best Practices for Emerging Market and Developing Economies
Florence Jaumotte, Jaden Kim, Samuel Pienknagura, and Gregor Schwerhoff
Meeting COP28 goals requires a substantial increase in clean energy investment by 2030, including in emerging market and developing economies (EMDEs). Amid domestic financial constraints, foreign direct investment (FDI) could play a key role in EMDEs’ ability to close their renewable energy investment gap and finance green projects, more broadly. This Note finds that strengthening climate policies boosts FDI into renewable energy in EMDEs, especially in those with solar power potential, while less clear effects are found for FDI into EVs and green hydrogen possibly due to their recent emergence. Closing the average climate policy gap with respect to AEs could secure 40 percent of the private finance needed for renewable energy investment in EMDEs, helping overcome the impact of high financing costs. Strengthening the macro-structural framework, such as through improving trade and capital account openness and institutional quality, would also raise green FDI inflows, complementing climate policies. Case studies show that countries that attracted FDI into renewable energy put in place a large and diverse set of policies in the electricity sector, including those that secure a revenue stream for investors in the initial phases, such as power-purchase agreements/feed-in tariffs, renewables targets, and complementary investments. Countries that successfully attracted FDI into EVs relied on the development of national sectoral strategies including production and adoption subsidies, prior comparative advantage in the sector, and bilateral alliances with key players in the EV market. Finally, comprehensive national hydrogen strategies that leverage international efforts to boost production, and good conditions for production of renewable energy, were key drivers of green hydrogen FDI. Global initiatives such as the Just Energy Transition Partnerships and the EU strategy for green hydrogen are benefitting FDI to EMDEs.
Keywords:
Low carbon technologies; FDI; Climate Policies; Renewable Energy; Green Hydrogen; Electric Vehicles; IMF staff Climate note; green FDI; part of the International Monetary Fund; IMF analysis; FDI inflow; Foreign direct investment; Climate policy; Climate finance; Non-renewable resources; Global; East Asia; Europe; Africa
Cover Climate Change Challenges and Opportunities in Latin America and the Caribbean
Climate Change Challenges and Opportunities in Latin America and the Caribbean

Abstract

The analysis in the book suggests that LAC countries are facing substantial challenges related to climate change but have tools at their disposal to seize the opportunities that the climate change presents. To maximize opportunities and minimize the risks LAC countries will need to improve flexibility and adaptability of their economies. Policies aimed at supporting the reallocation of labor and capital across sectors, investing in basic skills and human capital, improving transparency and economic governance to encourage investment in technology and know-how, and creating fiscal space to manage the climate transition would help LAC countries position themselves to take advantage of the opportunities afforded by the climate transition.

Keywords:
Climate; Latin America and the Caribbean; mitigation; adaptation; building resilience; IMF staff calculation; climate ambition; bank asset quality; financing climate policy; adaptation investment; Climate change; Greenhouse gas emissions; Climate policy; Natural disasters; Non-renewable resources; Caribbean; Central America; Global; South America; Middle East and Central Asia
Cover IMF Staff Country Reports
Chile: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper focuses on Chile’s tax reform scenarios in international perspective. While the economic and social outcomes achieved by Chile have been impressive, important social challenges lie ahead. This paper benchmarks the estimated revenue gains of the tax reform proposal and discusses different fiscal consolidation scenarios. The paper also presents the stylized facts of the tax system in Chile compared with The Organization for Economic Cooperation and Development (OECD) countries. Following a very brief overview of the tax reform proposal, the paper also presents a benchmark analysis of the estimated revenue yields against similar domestic revenue mobilization episodes in OECD countries. The authorities are firmly committed to their medium-term fiscal consolidation plan. The tax reform is needed to finance social spending and meet the authorities’ fiscal consolidation plan. It is also important to consider that the increase in taxes will have implications for growth, with the effect depending on the final composition of the tax and spending reforms.
Keywords:
staff team of the International Monetary Fund; revenue scenario; green tax; abnormal returns; withdrawal request; capital market depth; AFP investment portfolio; climate strategy; NDC goal; IMF staff calculation; Pension spending; Climate policy; Carbon tax; Greenhouse gas emissions; Global; Caribbean; Western Hemisphere
Cover IMF Staff Country Reports
Chile: Technical Assistance Report-An Evaluation of Improved Tax Options
International Monetary Fund. Fiscal Affairs Dept.
This Technical Assistance report presents an evaluation of improved Green Tax Options for Chile. Consistent with its emission reduction ambitions, Chile has developed multiple climate policies. While Chile has made important progress to align policies with climate commitments, additional mitigation efforts are required to reach emission reduction targets in 2030 and by mid-century. The Ministry of Finance announced that improvements to green taxes will be included in the general tax reform presented to parliament in July 2022. Moreover, since the country has five years of experience administering green taxes, further carbon pricing enhancements should leverage existing institutional capacity without adding significant administrative burden. This report evaluates existing green taxes in the country, including revenue performance, coverage, and selected design issues. It also discusses changes that will take effect in 2023, as well as new mitigation tools introduced in the Framework Law on Climate Change. The report uses the Climate Policy Assessment Tool to evaluate different scenarios to improve carbon pricing and bring the country closer to or in line with its climate targets. Results are presented in terms of emissions reduction, revenue-raising potential, effects on gross domestic product and energy prices, distributional impacts across households and firms, abatement costs and co-benefits. The report also offers different options to recycle revenue from higher carbon pricing to help the government prepare a well-thought-out reform communication strategy.
Keywords:
Climate mitigation policy carbon pricing carbon taxation climate change emissions energy; IMF Fiscal Affairs Department; Ministry of Finance staff; Ministry of Environment discussion; output price increase; C. energy price; Carbon tax; Greenhouse gas emissions; Climate policy; Global; Caribbean; Western Hemisphere