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Asia and Pacific > India

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Cover IMF Staff Country Reports
Australia: Selected Issues
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper examines monetary policy transmission via three lenses in Australia. The paper finds that while macroeconomic dynamics in Australia in the current tightening cycle have not differed significantly from historical experience and from experiences in other major AEs, the resilience of Australia’s economy in recent years is remarkable, as evidenced by persistently tight labor markets. Second, several features of the Australian housing market, most notably the high prevalence of variable rate mortgages, may strengthen monetary policy transmission to households relative to other AEs. Lastly, we find that firm investment in Australia’s nonextractive sector is strongly sensitive to monetary policy changes; the sensitivity is more pronounced for firms with less liquidity, higher leverage, and higher reliance on bank and short-term financing. We highlight how resilience in Australian corporate balance sheets in recent years may have helped soften monetary policy transmission to investment in the current cycle.
Keywords:
monetary policy shock; heterogeneity in monetary policy TRANSMISSION; industries in Australia; domestic energy transition; fossil fuel demand; Non-renewable resources; Monetary tightening; Renewable energy; Global; Europe
Cover Staff Climate Notes
Sleepwalking to the Cliff Edge? A Wake-up Call for Global Climate Action
Simon Black
,
Ian W.H. Parry
, and
Karlygash Zhunussova
Urgent action to cut greenhouse gas (GHG) emissions is needed now. Early next year, all countries will set new emissions targets for 2035 while revising their 2030 targets. Global GHGs must be cut by 25 and 50 percent below 2019 levels by 2030 to limit global warming to 2°C and 1.5°C respectively. But current targets would only cut emissions by 12 percent, meaning global ambition needs to be doubled to quadrupled. Further delay will lead to an ‘emissions cliff edge’, implying implausible cuts in GHGs and putting put 1.5°C beyond reach. This Note provides IMF staff’s annual assessment of global climate mitigation policy. It illustrates options for equitably aligning country targets with the Paris Agreement’s temperature goals. It also provides guidance on modelling needed to set emissions targets and quantify climate mitigation policy impacts.
Keywords:
Paris Agreement; climate mitigation; carbon pricing; climate finance; climate investment; IMF staff Climate note; part of the International Monetary Fund; IMF staff Climate; IMF analysis; IMF staff Climate Note 2024/006; cliff edge; Greenhouse gas emissions; Climate change; Global
Cover IMF Working Papers
Climate Policies and External Adjustment
Rudolfs Bems
,
Luciana Juvenal
,
Weifeng Liu
, and
Warwick J. McKibbin
This paper assesses the economic effects of climate policies on different regions and countries with a focus on external adjustment. The paper finds that various climate policies could have substantially different impacts on external balances over the next decade. A credible and globally coordinated carbon tax would decrease current account balances in greener advanced economies and increase current accounts in more fossil-fuel-dependent regions, reflecting a disproportionate decline in investment for the latter group. Green supply-side policies—green subsidy and infrastructure investment—would increase investment and saving but would have a more muted external sector impact because of the constrained pace of expansion for renewables or the symmetry of the infrastructure boost. Country characteristics, such as initial carbon intensity and net fossil fuel exports, ultimately determine the current account responses. For the global economy, a coordinated climate change mitigation policy package would shift capital towards advanced economies. Following an initial rise, the global interest rates would fall over time with increases in the carbon tax. These external sector effects, however, depend crucially on the degree of international policy coordination and credibility.
Keywords:
Global climate policies; carbon tax; net-zero emissions; current account balances; international capital flows; dynamic general equilibrium modelling; G-Cubed; climate change mitigation policy package; current account response; IMF working paper 24/162; infrastructure investment; investment response; Current account; Greenhouse gas emissions; Productivity; Global; Europe
Cover IMF Working Papers
Policy Options for Climate Mitigation: Emissions Trading Schemes in Asia-Pacific
Margaux MacDonald
and
Ian W.H. Parry
Large reductions in global emissions are needed for the world to be on track to meet global temperature goals. Asia-Pacific countries have a critical role in emissions reduction given their large and rising share in global emissions. This paper discusses the main opportunities and behavioral responses for reducing emissions, and commonly used mitigation instruments. It then considers key design issues for carbon pricing, with a focus on emissions trading schemes (ETS), describes measures to overcome the obstacles to carbon pricing, and discusses experiences with carbon pricing relevant for Asia-Pacific economies. Lastly, the paper covers complementary policy reforms, including reinforcing mitigation instruments, public investment, fuel tax reform, green industrial policies, and supporting reforms to the energy sector. Carbon pricing, including ETSs can be the centerpiece of climate mitigation strategies for most countries, particularly if ETSs are designed to mimic some of the administrative and economic attractions of carbon taxes and implemented appropriately.
Keywords:
Emissions trading scheme; climate; Asia; mitigation instrument; climate mitigation strategy; mitigation opportunity; Asia-Pacific country; policy reform; transmission company; Carbon tax; Greenhouse gas emissions; Non-wage benefits; Asia and Pacific; Global
Cover IMF Working Papers
Fiscal Implications of Global Decarbonization
Simon Black
,
Ruud de Mooij
,
Vitor Gaspar
,
Ian W.H. Parry
, and
Karlygash Zhunussova
Internationally coordinated climate mitigation policies can effectively put the world on a path toward achieving the agreed Paris temperature goals. Such coordination could be initiated by large players, such as China, the US, India, the African Union, and the European Union. We find that the implications for fiscal revenues over time will be shaped by a combination of rising carbon prices, the gradual erosion of existing fuel tax bases, and possible revenue sharing arrangements. Public spending rises during the transition to build green public infrastructure, promote innovation, and support clean technology deployment. Countries will also need financing for compensating vulnerable households and industries, and to transfer funds to poor countries. With well-designed climate-fiscal policy relying on carbon pricing, global decarbonization will have anything from moderately positive to moderately negative impacts on fiscal balances in high-income countries. For middle and low-income countries, net fiscal impacts are generally positive and can be significant. Revenue sharing at the global level would make an historical contribution to breaching the financial divide between rich and poor countries.
Keywords:
Climate mitigation policy; Fiscal impact; Global coordination; Carbon pricing; climate policy assessment tool; decarbonization scenario; sectoral mitigation option; climate-fiscal policy; Greenhouse gas emissions; Climate policy; Carbon tax; Global; Europe
Cover Departmental Papers
Asia’s Perspectives on Climate Change: Policies, Perceptions, and Gaps
Ms. Era Dabla-Norris
,
Mr. Thomas Helbling
,
Kenichiro Kashiwase
,
Giacomo Magistretti
, and
Mouhamadou Sy
Asia and the Pacific’s green transition will have far-reaching implications for the global economy. Over the past decades, the region has become the engine of global economic growth. With relatively heavy reliance on coal and high energy intensity, the region has recently become the largest contributor to growth in global GHG emissions, accounting for nearly 40 percent of the total emissions in 2020. Achieving net zero by 2050 requires an energy transition at an unprecedented scale and speed, even as the region must ensure energy security and affordability. The region must also address its vulnerability to climate change as it comprises many countries highly exposed to climate hazards increasing in severity and frequency with global warming. If managed well, the green transformation in Asia and the Pacific will create opportunities for economies not only in the region, but also around the world for inclusive and sustainable growth. The global economy is still far from achieving net zero by 2050, and the Asia and the Pacific region must play its part to deliver on mitigation and adaptation goals. Understanding Asia’s perspectives on the constraints and issues with climate ambitions, climate policy actions, and constraints is central for devising climate strategies to meet climate goals. To this end, this chapter draws on novel surveys of country authorities and public in the region to distill climate ambitions and challenges faced and identify sources of major gaps in achieving mitigation and adaptation goals. Measures to help close the gaps are drawn from policy discussions with country authorities in bilateral surveillance and related studies.
Keywords:
Asia; Climate Change; Mitigation; Adaptation; Nationally Determined Contributions (NDCs); Industrial Policy; Energy Transition; Renewables; Green Technology; Climate Finance; Critical Minerals; IMF country authority climate survey; IMF country staff report; mitigation policy; Policy instrument; IMF Library; Greenhouse gas emissions; Climate policy; Asia and Pacific; Global; Middle East
Cover IMF Working Papers
Mitigating Climate Change at the Firm Level: Mind the Laggards
Damien Capelle
,
Divya Kirti
,
Nicola Pierri
, and
German Villegas Bauer
Using self-reported data on emissions for a global sample of 4,000 large, listed firms, we document large heterogeneity in environmental performance within the same industry and country. Laggards—firms with high emissions relative to the scale of their operations—are larger, operate older physical capital stocks, are less knowledge intensive and productive, and adopt worse management practices. To rationalize these findings, we build a novel general equilibrium heterogeneous-firm model in which firms choose capital vintages and R&D expenditure and hence emissions. The model matches the full empirical distribution of firm-level heterogeneity among other moments. Our counter-factual analysis shows that this heterogeneity matters for assessing the macroeconomic costs of mitigation policies, the channels through which policies act, and their distributional effects. We also quantify the gains from technology transfers to EMDEs.
Keywords:
Climate Change; Productivity; Technology Adoption; Capital Vintages; Emissions; R&D expenditure; capital vintage; management practice; emission intensity; emission Intensity; Carbon tax; Greenhouse gas emissions; Consumption; Stocks; Global
Cover Staff Climate Notes
Is the Paris Agreement Working? A Stocktake of Global Climate Mitigation
Mr. Simon Black
,
Ian W.H. Parry
, and
Karlygash Zhunussova
Urgent and aggressive action to cut greenhouse gas emissions this decade is needed. As countries take stock of the Paris Agreement, this Note provides IMF staff’s annual assessment of global climate mitigation policy. Global ambition needs to be more than quadrupled: emissions cuts of 50 percent below 2019 levels by 2030 are needed for 1.5 degrees Celsius, but current targets would only achieve 11 percent. We provide options for ratcheting-up ambition equitably. Implementation could be accelerated via agreements on minimum carbon prices. Drastic increases in mitigation investment are needed, requiring policies to shift private sector incentives. Climate finance should be scaled-up, with a new goal aligned with needs in developing countries. The development and diffusion of low-carbon technologies should be accelerated collaboratively. Overall, the Paris Agreement is making progress, but a response to the Global Stocktake that prioritizes decisive action this decade is critical.
Keywords:
Paris Agreement; climate mitigation; carbon pricing; climate finance; low-carbon technology; climate investment; IMF staff climate note; IMF staff climate NOTE 2023/002; mitigation policy; Policy package; Greenhouse gas emissions; Climate change; Global
Cover IMF Working Papers
A Framework for Climate Change Mitigation in India
Jean Chateau
,
Geetika Dang
,
Ms. Margaux MacDonald
,
John A Spray
, and
Sneha D Thube
Climate change poses challenging policy tradeoffs for India. The country faces the challenge of raising living standards for a population of 1.4 billion while at the same time needing to be a critical contributor to reducing global GHG emissions. The government has implemented numerous policies to promote the manufacturing and use of renewable energy and shift away from coal, but much still needs to be done to reach India’s 2070 net zero goal. Reducing GHG emissions will almost certainly have a negative impact on growth in the short run and have important distributional consequences for individuals and communities who today rely on coal. But with the right policies, these costs—which are non-negligible but dwarfed by the cost of climate change over the next decade if no action is taken—can be significantly curtailed. This paper provides an in depth review of the current climate policy landscape in India and models emissions trajectories under different policy options to reduce GHG emissions.
Keywords:
Climate; IMF-ENV; India; net zero; climate policy landscape; research department; cost of climate change; emissions intensity; demand management; Greenhouse gas emissions; Renewable energy; Climate finance; Non-renewable resources; Electricity; Global; Asia and Pacific
Cover IMF Working Papers
Global Economic Impacts of Physical Climate Risks
Caterina Lepore
and
Roshen Fernando
This paper evaluates the global economic consequences of physical climate risks under two Shared Socioeconomic Pathways (SSP 1-2.6 and SSP 2-4.5) using firm-level evidence. Firstly, we estimate the historical sectoral productivity changes from chronic climate risks (gradual changes in temperature and precipitation) and extreme climate conditions (representative of heatwaves, coldwaves, droughts, and floods). Secondly, we produce forward-looking sectoral productivity changes for a global multisectoral sample of firms. For floods, these estimates account for the persistent productivity changes from the damage to firms’ physical capital. Thirdly, we assess the macroeconomic impact of these shocks within the global, multisectoral, intertemporal general equilibrium model: G-Cubed. The results indicate that, in the absence of additional adaptation relative to that already achieved by 2020, all the economies would experience substantial losses under the two climate scenarios and the losses would increase with global warming. The results can be useful for policymakers and practitioners interested in conducting climate risk analysis.
Keywords:
climate risk analysis; capital markets department; climate risk; physical capital; productivity change; Climate change; Productivity; Agricultural sector; Natural disasters; Global; North America; Western Europe; Europe