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International Monetary Fund. Asia and Pacific Dept

readily adjustable fiscal incentives to reinforce mitigation and other policies at the sectoral level. Articulating a clear, forward-looking policy framework for the achievement of Korea’s climate ambitions, especially regarding carbon pricing, will be important to provide adequate incentives for private investment in the development and use of green technologies. At the national level, the authorities could consider in Phase 4 of the ETS a trajectory of emissions caps fully aligned with meeting the 2030 emissions target; underpinning the ETS with exogenous and

International Monetary Fund. Asia and Pacific Dept

International Perspectives E. Summary of Recommendations References FIGURES 1. Global Fossil Fuel CO2 Emissions Trends 2. Breakdown of GHG Emissions 3. Fossil Fuel CO2 Emissions Trends 4. Current Prices, Supply, and non-Carbon Environmental Costs, Selected Fuels and Countries, 2015 5. Korea: ETS Emissions Caps under Pathways to Emissions Neutrality 6. History of Prices in ETSs 7. United States: Efficiency Costs of $50 Carbon Tax or Equivalent Instruments, 2030 8. CO 2 Emissions Reductions for Mitigation Pledges and from Carbon Pricing 9. CO 2

International Monetary Fund. Asia and Pacific Dept

-2020. 3 rd phase: 2021-2025. Coverage (as of 2019) 685 large emitters (for Phase 3). 64 subsectors from 6 sectors: power generation, industry, buildings, waste, domestic Industry includes iron and steel, petrochemical, cement, oil refinery, nonferrous metals, paper, textile, machinery, mining, glass, ceramics, and others. Inclusion thresholds: company >125,000 tons CO 2 /year, facility >25,000 tons CO 2 /year. 73 percent of GHGs All six Kyoto gases (CO 2 , CH4, N2O, PFCs, HFCs, SF6), though CO 2 is by far the most important. Emission caps, mn tones CO 2e

Mr. Kirk Hamilton and Marianne Fay

international air and marine transport) being a prime target. Linking national carbon markets will increase their scale and liquidity. The European Union Greenhouse Gas Emission Trading System (the world’s largest carbon market) is a potential partner for emerging cap-and-trade systems. Auctioning “assigned amount units,“the national emission caps agreed under the UNFCCC, rather than giving them away, could generate additional finance, as could a global carbon tax, but these options face objections relating to fiscal costs and sovereignty. Generating funds for climate

Ian W.H. Parry, Victor Mylonas, and Mr. Michael Keen

taxes. There are various options however, for accommodating ETSs. One is to combine them with an explicit price floor mechanism, such as a minimum biding price at auction. Another is to combine the ETS with a variable carbon tax where the tax rate equals any prevailing difference between the floor and current ETS price. 31 And another—as in the Canadian scheme—is to set provincial emissions caps equal to the predicted emissions that would have occurred if the province had adopted a carbon tax in line with the price requirement. A complication here however is that

Mr. Michael Keen and Mr. Christos Kotsogiannis

good n required per unit of gross output of k . 22 There is large literature on the choice between taxation and cap-and-trade under uncertainty: see, for instance, Pizer (2002) and Aldy et al . (2010) . 23 We omit proofs of the claims that follow: these are straightforward once the structure of Section 2 is reformulated in terms of emission levels rather than carbon taxes. 24 So long, that is, as the emission cap there is binding. It could in principle be that in some efficient allocations the unconstrained country sets its tariffs so as to

Ian W.H. Parry

, if not centuries, rather than one country’s emissions in one year. Ideally, countries would meet their emission targets on average (with stable prices), rather than rigidly sticking to annual emission caps (with unstable prices). Rough predictions of prices needed to meet emission targets on average could be derived using predictions of future carbon dioxide emissions from fuel use, the impact of carbon pricing on fuel prices, and how responsive a fuel’s use is to a change in its price. The predictions could be adjusted if future emissions are not on track to meet

Alan Krupnick and Ian W.H. Parry

relaxing the emissions cap, while in periods when allowance prices fall to a floor level, the government could step in and buy allowances back at the floor price, thereby tightening the emissions cap. Yet another possibility is to allow covered sources to purchase international emission offsets (e.g., through the Clean Development Mechanism), which helps to put a ceiling on the domestic allowance price. Offset provisions enable domestic firms to claim credits by paying for (cheaper) mitigation projects, typically in developing economies. Offsets are not always real

Mr. Nicolas Arregui, Ian W.H. Parry, and Ms. Dora M Iakova

domestic ETS proposal to replace the EU ETS, which the UK will leave at the end of 2020 as the Brexit transition period ends. The proposal includes plans to: (i) cover the same emissions Sources as the current EU ETS; (ii) cut the emissions cap by 5 percent; and (iii) have a fixed auction reserve price, set at £15 per ton of CO2 (along with price ceilings to be specified). In case of a no-deal Brexit, a carbon tax would replace the EU ETS. The carbon tax would: (i) be set at a level comparable with the EU ETS price; (ii) allow infra-marginal exemptions for emissions