An IMF blog about a new paper entitled Proposal for an International Carbon Price Floor among Large Emitters  yesterday argued that a globally applied carbon price to cut GHG emissions by 1/4 to a 1/2 over the next  decade is necessary to keep global warming below 2°C…….At the heart of our policy discussions with member countries is carbon pricing—now widely accepted as the most important policy tool to achieve the drastic cuts to emissions we need. By making polluting energy sources more expensive than clean sources, carbon pricing provides incentives to improve energy efficiency and to re-direct innovation efforts towards green technologies. Carbon pricing needs to be supported by a broader package of measures to enhance its effectiveness and acceptability including public investment in clean technology networks (like grid upgrades to accommodate renewables) and measures to assist vulnerable households, workers, and regions. Nonetheless, at the global level, additional measures equivalent to a carbon price of $75 per ton or more are required by 2030.

It concludes: At the international level, a well-designed carbon price floor agreement would yield benefits to individual countries as well as to the collective. All participants would be better off from stabilizing the global climate system, and countries would enjoy domestic environmental benefits from curbing fossil fuel combustion—most importantly, fewer deaths from local air pollution…….There is no time to waste in putting in place such an arrangement. Imagine us in 2030. Let us make sure that we will not look back at 2021 just to regret the missed opportunity for effective action. Let us instead look back with pride at global progress towards keeping global warming below the 2oC threshold. We need coordinated action now—and it should be centered on an international carbon price floor.

While there are more than 60 countries using a form of carbon pricing in many it is too low to have an effect and the average price is $3 per tonne. The IMF states that prices of $75, $50, and $25 for advanced, high, and low-income emerging markets, respectively, in addition to policies such as regulations and subsidies, could help achieve a 23 percent reduction in global emissions below baseline by 2030. They cite the example of Canada where the minimum carbon price started at $10CAN  and will be $170CAN  by  2030. The beauty of the Canadian system, of course, is that a Carbon Fee and Dividend policy enables the Carbon fee to rise as high as necessary to get a decarbonised economy without hitting the consumer.

Bob Ward, policy and communications director at the Grantham Institute on Climate Change (LSE), (which has modelled the effect of a CF&D policy on UK households) commented“This is an excellent initiative and leadership by the IMF. We have already seen in the UK that even a relatively modest carbon floor price can help to accelerate the phase-out of coal in particular. A carbon floor price removes some of the uncertainty for businesses and allows them to invest with greater confidence in technologies and processes to reduce emissions.”