IMF urges carbon hikes from 'large emitting countries'

The IMF has urged “large emitting countries” to hike their carbon taxes as quickly as possible.

It said that “actions and commitments to date have fallen short”, warning “the longer we wait, the greater the loss of life and damage to the world economy”.

It said finance ministers will have a key role to “champion and implement” tax increases that help to mitigate climate change.

“To do so, they should re-shape the tax system and fiscal policies to discourage carbon emissions from coal and other polluting fossil fuels,” the fund said in a blog posting, Fiscal Policies to Curb Climate Change.

Here, Paschal Donohoe, the finance minister, in his budget this week announced a €6 hike in carbon charges to €26 a tonne, with an aim of €80 a tonne by 2030.

The increase drew criticism from advocates who say that the increases should be more and from others who said the vulnerable in society were not protected against the rise in petrol and heating costs.

The IMF said “large emitting countries” ought to hike carbon taxes to $75 (€68.50) a tonne by 2030.

“Governments will need to increase the price of carbon emissions to give people and firms incentives to reduce energy use and shift to clean energy sources. Carbon taxes are the most powerful and efficient tools, but only if they are implemented in a fair and growth-friendly way,” according to the blog post by Vitor Gaspar, Paolo Mauro, Ian Parry, and Catherine Pattillo.

“About 50 countries have a carbon pricing scheme in some form. But the global average carbon price is currently only $2 a tonne, far below what the planet needs. The challenge is for more countries to adopt one and for them to raise the price,” they said, praising Sweden for rising carbon taxes to $127 a tonne and reducing its emissions by a quarter in the past 25 years.

“Acting individually, countries may be reluctant to pledge to charge more for carbon if, for example, they are worried about the impact of higher energy costs on the competitiveness of their industries,” they said.

“Governments could address these problems with agreement on a carbon price floor for countries with high levels of emissions. This can be done equitably with a stricter price floor requirement for advanced economies. Countries that want to use different policies, like regulations to reduce emission rates or curb coal use, could join the price floor agreement if they calculate the carbon price equivalent of their policies.”