Mr. Simon Black, Ian Parry, Mr. James Roaf, and Karlygash Zhunussova
Achieving the Paris Agreement’s temperature goals requires cutting global CO2 emissions 25 to 50 percent this decade, followed by a rapid transition to net zero emissions. The world is currently not yet on track so there is an urgent need to narrow gaps in climate mitigation ambition and policy. Current mitigation pledges for 2030 would achieve just one to two thirds of the emissions reductions needed for limiting warming to 1.5 to 2oC. And additional measures equivalent to a global carbon price exceeding $75 per ton by 2030 are needed. This IMF Staff Climate Note presents extensive quantitative analyses to inform dialogue on closing mitigation ambition and policy gaps. It shows purely illustrative pathways to achieve the needed global emissions reductions while respecting international equity. The Note also presents country-level analyses of the emissions, fiscal, economic, and distributional impacts of carbon pricing and the trade-offs with other instruments—comprehensive mitigation strategies will be key.
Countries are increasingly committing to midcentury ‘net-zero’ emissions targets under the Paris Agreement, but limiting global warming to 1.5 to 2°C requires cutting emissions by a quarter to a half in this decade. Making sufficient progress to stabilizing the climate therefore requires ratcheting up near-term mitigation action but doing so among 195 parties simultaneously is proving challenging. Reinforcing the Paris Agreement with an international carbon price floor (ICPF) could jump-start emissions reductions through substantive policy action, while circumventing emerging pressure for border carbon adjustments. The ICPF has two elements: (1) a small number of key large-emitting countries, and (2) the minimum carbon price each commits to implement. The arrangement can be pragmatically designed to accommodate equity considerations and emissions-equivalent alternatives to carbon pricing. The paper discusses the rationale for an ICPF, considers design issues, compares it with alternative global regimes, and quantifies its impacts.