IMF backs carbon tax

The IMF has released the October 2019 edition of the Fiscal Monitor, that emphasises the case for using carbon taxes, or similar pricing schemes such as emission trading systems, to implement climate mitigation strategies.

Providing a quantitative framework for understanding the effects and trade-offs with other instruments, the report applies this methodology to the largest advanced and emerging economies. The IMF also provides alternative approaches, like ‘feebates’ to impose fees on high polluters and give rebates to cleaner energy users, that can play an important role when higher energy prices are difficult politically.

At the international level, the report calls for a carbon price floor arrangement among large emitters, designed flexibly to accommodate equity considerations and constraints on national policies.

The report estimates the consequences of carbon pricing and redistribution of its revenues for inequality across households. Strategies for enhancing the political acceptability of carbon pricing are discussed, along with supporting measures to promote clean technology investments.

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