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Mr. Tobias Adrian, Mr. Patrick Bolton, and Alissa M. Kleinnijenhuis
We measure the gains from phasing out coal as the social cost of carbon times the quantity of avoided emissions. By comparing the present value of the benefits from avoided emissions against the present value of costs of ending coal plus the costs of replacing it with renewable energy, our baseline estimate is that the world can realize a net gain of 77.89 trillion USD. This represents around 1.2% of current world GDP every year until 2100. The net benefits from ending coal are so large that renewed efforts, carbon pricing, and other financing policies we discuss, should be pursued.
Jaden Kim and Mr. Adil Mohommad
This brief paper accompanies the Green Energy and Jobs tool, which is a simple excel-based tool to estimate the job-creation potential of greening the electricity sector. Specifically, it calculates the net job gains or losses from increasing the level of energy efficiency, and from increasing the share of clean and renewable electricity generation in the total electricity output mix. The tool relies on estimates of job multipliers in the literature, and adds evidence from firm-level data on the job-intensity of different energy sources. The paper illustrates applications of the tool using data from the IEA’s Sustainable Development Scenario compared to business-as-usual. This tool is intended to help country teams engage further on climate change issues in bilateral surveillance.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper on the Solomon Islands quantifies additional spending needs for Solomon Islands to achieve key Sustainable Development Goals (SDGs) targets by 2030. The estimate indicates annual additional spending needs of about 6.9 percent of 2030 gross domestic product. Higher investment in energy infrastructure, including on renewable energy, is a key priority to strengthening climate change adaptation and paving the way toward a low-carbon transition. Creating fiscal space for projects with climate-proofing components through budget reallocation, while improving spending efficiency, would raise economic returns by building climate resilience. An integrated financing strategy with a mix of additional concessional financing and front-loaded fiscal measures, including domestic revenue mobilization, is needed and should be properly sequenced to achieve SDGs by 2030. The SDGs and climate commitment should be integrated into the existing public financial management reform agenda to achieve climate-sensitive development goals.
Mr. Pragyan Deb, Davide Furceri, Mr. Jonathan David Ostry, and Nour Tawk
Lockdowns resulting from the COVID-19 pandemic have reduced overall energy demand but electricity generation from renewable sources has been resilient. While this partly reflects the trend increase in renewables, the empirical analysis presented in this paper highlights that recessions result in a permanent, albeit small, increase in energy efficiency and in the share of renewables in total electricity. These effects are stronger in the case of advanced economies and when complemented with environment and energy policies—both market-based measures such as taxes on pollutants, trading schemes and feed-in-tariffs, as well as non-market measures such as emission and fuel standards and R&D investment and subsidies—to incentivize and hasten the transition towards renewable sources of energy.
Mr. Johannes Wiegand
Climate financing and compensation have emerged as key themes in the international climate mitigation debate. According to one argument in support of compensation, advanced economies (AEs) have used up much of the atmosphere’s absorptive capacity, thus causing global warming and blocking a similar, fossil-fuel driven development path for emerging markets and developing economies (EMDEs). This paper develops a simple model of a sequential, fossil-fuel driven development process to discuss these issues systematically. The results suggest: (i) AEs have typically a stronger interest in climate change mitigation than EMDEs, (ii) from an equity perspective, compensation is called for only if EMDEs are relatively small; (iii) there can also be an efficiency case for compensation, however, with AEs buying EMDEs out of some of their GHG emissions; (iv) ultimately, a superior option—for both the world’s climate and growth prospects—is the development of clean energy technologies by AEs and their transfer to EMDEs. The latter requires strong mitigation efforts by AEs even if EMDEs fail to play along initially.
Mr. Simon Black, Koralai Kirabaeva, Ian W.H. Parry, Mr. Mehdi Raissi, and Karlygash Zhunussova
This paper discusses a comprehensive strategy for implementing Mexico’s climate mitigation commitments. Progressively increasing carbon prices from current levels of US$3 per ton to US$75 per ton by 2030 would achieve Mexico’s mitigation pledges, while raising annual revenues of 1.8 percent of GDP and cumulatively averting 11,600 deaths from local air pollution. The carbon price would raise fossil fuel and electricity prices, imposing burdens of 2.7 percent of consumption on the average Mexican household. However, recycling carbon pricing revenues would offset most of this burden, and targeted transfers could make the reform pro-poor and pro-equity. Additionally, the economic efficiency costs of carbon pricing (0.3 percent of GDP in 2030) are more than offset by local air pollution and other domestic environmental benefits (before even counting climate benefits). Mexico would need a more ambitious 2030 target if it were to follow many other countries in adopting a midcentury ‘net-zero’ emissions target. To enhance the effectiveness of the mitigation strategy, carbon pricing can be reinforced with sectoral instruments, such as feebates in the transport, power, industry, building, forestry, extractive, and agricultural sectors. Complementary policies are also needed to support public investment in the clean energy transition.
Ian W.H. Parry, Mr. Peter Dohlman, Mr. Cory Hillier, Mr. Martin D Kaufman, Florian Misch, Mr. James Roaf, Mr. Christophe J Waerzeggers, and Miss Kyung Kwak
This Climate Note discusses the rationale, design, and impacts of border carbon adjustments (BCAs), charges on embodied carbon in imports potentially matched by rebates for embodied carbon in exports. Large disparities in carbon pricing between countries is raising concerns about competitiveness and emissions leakage, and BCAs are a potentially effective instrument for addressing such concerns. Design details are critical, however. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would help ease the transition for emissions-intensive trading partners. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs are challenging because they pose legal risks and may be at odds with the differentiated responsibilities of developing countries. Furthermore, BCAs provide only modest incentives for other large emitting countries to scale carbon pricing—an international carbon price floor would be far more effective in this regard.