Ian W.H. Parry, Rick van der Ploeg, and Roberton Williams
Market-based instruments like carbon taxes are potentially the most effective policies for reducing energy-related CO2 emissions. They do this by cutting the demand for fossil fuels and making it more attractive to use zero-carbon fuels like renewables.
Charles Griffiths, Elizabeth Kopits, Alex Marten, Chris Moore, Steve Newbold, and Ann Wolverton
Without action to control rising greenhouse gases (GHGs), scientists predict that climate change will continue over time, bringing higher temperatures, sea level rise, and the potential for abrupt changes in earth system processes, with likely negative impacts on agricultural yields, ecosystems, human health, and more.
An efficient forest carbon sequestration program could account for about a quarter of the desired global carbon dioxide (CO2) mitigation over this century (with most of the remaining 75 percent from reducing carbon emissions from fossil fuels). An estimated 42 percent of this carbon storage could be achieved via reduced deforestation, 31 percent from forest management, and 27 percent from afforestation, with about 70 percent of overall carbon sequestration occurring in tropical regions.
Low- and lower-middle-income countries contribute only about 12 percent of global carbon dioxide (CO2) emissions, though this share is increasing (and they account for a larger share of other greenhouse gases).
Developed economies have pledged to generate, from 2020, US$100 billion per year to help finance climate mitigation and adaptation in developing economies. This chapter discusses the potential role of fiscal instruments in raising this “climate finance.”
Although replacing regulatory emissions control policies with market-based instruments has produced significant cost savings, the predominant effect has been to reduce emissions. The savings and emission reductions have fallen somewhat short of their full potential, however, partly because actual designs have deviated from the most economically efficient designs (e.g., because programs are not fully comprehensive). Market-based policies have also promoted clean technology investments (although gains are not always as large as expected). Carbon leakage effects to date have been relatively modest.
Ruud A. de Mooij, Mr. Michael Keen, and Ian W.H. Parry
Efforts to control atmospheric accumulations of greenhouse gases that threaten to heat up the planet are in their infancy. Although the IMF is not an environmental organization, environmental issues matter for its mission when they have major implications for macroeconomic performance and fiscal policy. Climate change clearly passes both these tests.