A carbon tax is ‘single most powerful’ way to combat climate change, IMF says


Increasing the price of carbon is the most efficient and powerful method of combating global warming and reducing air pollution, according to a new report from the International Monetary Fund.

While the idea of carbon taxes on fossil fuel corporations has been spreading across the globe in the past couple decades, increasing prices on carbon emissions has received widespread backlash from those who argue the tax would raise energy bills.

But economists have long contended that raising the cost of burning fossil fuels like coal, oil and gas is the best way to mitigate climate change, and that revenue raised from the tax can be returned to consumers through rebates and dividends.

“We view fiscal policy as a crucial way of combating climate change,” said Paolo Mauro, deputy director of Fiscal Affairs Department at the IMF. “You can reshape the tax system and you can reshape fiscal policy more generally in order to discourage carbon emissions.”

Global temperatures are projected to rise by roughly 4 C above preindustrial levels by 2100. The 2015 Paris climate accord aims to limit warming to 2 C, with a long shot goal of 1.5 C. Most countries are not on track to achieve those targets, and the U.S. plans to formally withdraw from the Paris agreement in 2020.

More than 40 governments globally have implemented a form of carbon pricing, whether it be through direct taxation on fossil fuel producers or cap-and-trade programs. However, the global average carbon price is $2 a ton — a small fraction of the estimated $75 a ton price in 2030 consistent with a 2 C warming target, according to the report.

The IMF estimates a $75 a ton carbon tax will lead to the amount of emissions scientists estimate will correspond to 2 C of warming. At that level, coal prices would rise by more than 200% above baseline levels in 2030.

Under the same tax, the price of natural gas, which is used for power generation and for heating and cooking in households, would increase by 70% on average, with most of the impact in North and South America, where baseline prices are much lower. Gasoline prices would rise by 5% to 15% in most countries…Read more>>