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Political Science > Environmental Policy

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Cover IMF Working Papers
Climate Policies and External Adjustment
Rudolfs Bems, Luciana Juvenal, Weifeng Liu, and Warwick J. McKibbin
This paper assesses the economic effects of climate policies on different regions and countries with a focus on external adjustment. The paper finds that various climate policies could have substantially different impacts on external balances over the next decade. A credible and globally coordinated carbon tax would decrease current account balances in greener advanced economies and increase current accounts in more fossil-fuel-dependent regions, reflecting a disproportionate decline in investment for the latter group. Green supply-side policies—green subsidy and infrastructure investment—would increase investment and saving but would have a more muted external sector impact because of the constrained pace of expansion for renewables or the symmetry of the infrastructure boost. Country characteristics, such as initial carbon intensity and net fossil fuel exports, ultimately determine the current account responses. For the global economy, a coordinated climate change mitigation policy package would shift capital towards advanced economies. Following an initial rise, the global interest rates would fall over time with increases in the carbon tax. These external sector effects, however, depend crucially on the degree of international policy coordination and credibility.
Keywords:
Global climate policies; carbon tax; net-zero emissions; current account balances; international capital flows; dynamic general equilibrium modelling; G-Cubed; climate change mitigation policy package; current account response; IMF working paper 24/162; infrastructure investment; investment response; Current account; Greenhouse gas emissions; Productivity; Global; Europe
Cover IMF Working Papers
Policy Options for Climate Mitigation: Emissions Trading Schemes in Asia-Pacific
Margaux MacDonald and Ian W.H. Parry
Large reductions in global emissions are needed for the world to be on track to meet global temperature goals. Asia-Pacific countries have a critical role in emissions reduction given their large and rising share in global emissions. This paper discusses the main opportunities and behavioral responses for reducing emissions, and commonly used mitigation instruments. It then considers key design issues for carbon pricing, with a focus on emissions trading schemes (ETS), describes measures to overcome the obstacles to carbon pricing, and discusses experiences with carbon pricing relevant for Asia-Pacific economies. Lastly, the paper covers complementary policy reforms, including reinforcing mitigation instruments, public investment, fuel tax reform, green industrial policies, and supporting reforms to the energy sector. Carbon pricing, including ETSs can be the centerpiece of climate mitigation strategies for most countries, particularly if ETSs are designed to mimic some of the administrative and economic attractions of carbon taxes and implemented appropriately.
Keywords:
Emissions trading scheme; climate; Asia; mitigation instrument; climate mitigation strategy; mitigation opportunity; Asia-Pacific country; policy reform; transmission company; Carbon tax; Greenhouse gas emissions; Non-wage benefits; Asia and Pacific; Global
Cover High-Level Summary Technical Assistance Reports
Islamic Republic of Mauritania: Climate Mitigation Policy Diagnostic
Diego Mesa Puyo, Zhiyong An, Thomas Benninger, and Nate Vernon
Mauritania requested capacity development from the Fiscal Affairs Department on carbon taxation, fossil fuel pricing and fiscal aspects of hydrogen development. This is a high-level summary of the technical assistant and the recommendations provided to the authorities. The report assesses options to gradually introduce a carbon tax to bring the country in line with its Nationally Determined Contribution for 2030 and net-zero pledge for 2050, including targeted support for vulnerable households. It then reviews approach to price fossil fuel products and proposes a revised methodology better aligned with international petroleum markets, along with a fiscally neutral smoothing mechanism to mitigate the impact of abrupt price changes on Mauritanian consumers. Finally, the report evaluates fiscal aspects related to the development of the low and zero-emissions hydrogen to ensure the country continues to position itself as an attractive investment destination without foregoing future revenue streams.
Keywords:
Carbon Pricing; Carbon Taxes; Fiscal Policy; Climate Mitigation; climate mitigation policy diagnostic; high-level summary; tax volatility; hydrogen development; price setting; Carbon tax; Fuel prices; Climate policy; Non-renewable resources
Cover High-Level Summary Technical Assistance Reports
Cabo Verde: Climate Policy Assessment
Katja Funke, Alberto Garcia Huitron, and Didier Tabaro
Cabo Verde faces development challenges from multiple structural factors, including insularity, territorial discontinuity, fragility of ecosystems, and scarcity of natural resources, namely water and arable land. Climate change implications are amplifying these challenges. As an island extension of the arid Sahel zone, Cabo Verde faces severe water shortage, which the country addresses more and more through energy intensive desalination, using electricity produced largely by thermal power plants, which depend entirely on imported fossil fuels. The resulting high energy prices directly impact the cost of water production. In conjunction with climate change induced aridity, the energy-water-climate nexus presents the core development challenge for the country.
Keywords:
Cabo Verde; Climate; Energy; Water; Adaptation; energy-water-climate nexus; climate change implication; climate policy assessment; Sahel zone; climate policy diagnostic; Climate policy; Climate change; Renewable energy; Tariffs; Global
Cover IMF Working Papers
Trade in Low Carbon Technologies: The Role of Climate and Trade Policies
Samuel Pienknagura
Curbing carbon emissions to meet the targets set in the Paris Agreement requires the deployment of low carbon technologies (LCTs) at a global scale. This paper assesses the role of climate and trade policies in fostering LCT diffusion through trade. Leveraging a comprehensive database of climate policies and a new database identifying trade in low carbon technologies and the tariffs applied to these goods, this paper shows that the introduction of new climate policies has a positive and significant impact on LCT imports. Zooming into specific climate policies, the paper finds that, except for non-binding ones, all climate policies stimulate LCT imports. The paper also highlights the role of trade policies as an engine of LCT diffusion—reductions in tariffs applied on LCT goods have a sizeable impact on LCT imports. On the flip side, results suggest that more protectionist measures would impede the spread of low-carbon technologies.
Keywords:
Climate policies; trade; low carbon technologies; technological diffusion.; LCT import; LCT diffusion; deployment of low carbon technologies; role of trade policies; policy portfolio; Climate policy; Imports; Trade policy; Tariffs; Climate change; Global
Cover IMF Working Papers
Cross-Border Impacts of Climate Policy Packages in North America
Jean-Marc Fournier, Tannous Kass-Hanna, Liam Masterson, Anne-Charlotte Paret, and Sneha D Thube
We quantify cross-border effects of the recent climate mitigation policies introduced in Canada and the U.S., using the global general equilibrium model IMF-ENV. Notably, with the substantial emission reductions from Canada’s carbon tax-led mitigation policies and the U.S.’ Inflation Reduction Act, these two countries would bridge two-thirds of the gap toward their Nationally Determined Contribution (NDC) goals. While the broadly divergent policies are believed to elicit competitiveness concerns, we find the aggregate cross-border effects within North America to be very limited and restricted to the energy intensive and trade exposed industries. Potential carbon leakages are also found to be negligible. A more meaningful difference triggered by policy heterogeneity is rather domestic, especially with U.S. subsidies increasing energy output while the Canada model with a carbon tax would marginally decrease it. This analysis is complemented by a stylized model illustrating how such divergence can affect the terms of trade, but also how these effects can be countered by exchange rate flexibility, border adjustments or domestic taxation.
Keywords:
Climate Policy; Climate Change Policy; Nationally Determined Contributions (NDCs); Mitigation; Climate subsidies; Carbon Tax; Carbon pricing; Spillovers; North America; Global; IMF-ENV model; Computable General Equilibrium (CGE) models; Competitiveness; Greenhouse Gas Emissions (GHG); Revenue Recycling; Inflation Reduction Act (IRA); Power; Electricity; climate policy package; mitigation policy; green subsidy; Canada's Carbon pricing policy; divergent policy
Cover IMF Staff Country Reports
Principality of Andorra: Selected Issues
International Monetary Fund. African Dept.
This Selected Issues paper focuses on housing affordability in Andorra. This paper shows a granular analysis of housing affordability, exploiting microdata from the Survey of Living Conditions, to identify the groups that are most affected and better inform and target housing policies. Evidence that affordability is lower for renters and that Andorra is a renter-dominated real estate market combines to create a housing affordability issue. Low-income and low-skilled workers are disproportionally affected. This study analyzes the evolution and characteristics of housing demand and supply dynamics in the country, which indicates a supply and demand mismatch in the affordable segment of the Andorran housing market as well as insufficient fluidity, which exacerbates the shortage of short-term rentals and complicates the hiring of foreign workers. A multipronged policy approach is needed, and a careful balance is needed to minimize market distortions while increasing the stock of housing in the medium-term.