IMF Working Papers Volume 2022 Issue 107: The Great Carbon Arbitrage (2022)

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The Great Carbon Arbitrage

Author:

Mr. Tobias Adrian

Mr. Tobias Adrian
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https://orcid.org/0000-0001-9379-9592

Mr. Patrick Bolton

0000000404811396

https://isni.org/isni/0000000404811396 International Monetary Fund

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, and

Alissa M. Kleinnijenhuis

Alissa M. Kleinnijenhuis
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Series:: IMF Working Papers

Volume/Issue:: Volume 2022: Issue 107

Publication Date:: 01 Jun 2022

DOI:: https://doi.org/10.5089/9798400210532.001

ISBN:: 9798400210532

ISSN:: 1018-5941

Pages:: 67

Keywords:: Climate; Carbon; Environment; Climate Policy; Valuation of Environmental Effects; Financial Economics; carbon arbitrage; net benefit; financing policy; baseline estimate; investment cost; coal company; Non-renewable resources; Renewable energy; Climate finance; Arbitrage; Greenhouse gas emissions; Global; net gain; country cost; Africa; North America

Series:: IMF Working Papers

Volume/Issue:: Volume 2022: Issue 107

Language:: English

Publication Date:: 01 Jun 2022

DOI:: https://doi.org/10.5089/9798400210532.001

ISBN:: 9798400210532

ISSN:: 1018-5941

Pages:: 67

Keywords:: Climate; Carbon; Environment; Climate Policy; Valuation of Environmental Effects; Financial Economics; carbon arbitrage; net benefit; financing policy; baseline estimate; investment cost; coal company; Non-renewable resources; Renewable energy; Climate finance; Arbitrage; Greenhouse gas emissions; Global; net gain; country cost; Africa; North America

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We measure the gains from phasing out coal as the average social cost of carbon times the quantity of avoided emissions. By comparing the present value of benefits from avoided emissions against the present value of costs of ending coal and replacing it with renewables, our conservative baseline estimate is that the world can realize a net gain of $85 trillion. This global net social benefit can be attained through an international agreement to phase out coal. We also explore how this net benefit is distributed across countries and find that most countries would benefit from a global coal phase-out even without any compensatory cross-country transfers. Finally, we estimate the size of public funds that must be committed under a blended finance arrangement to finance the cost of replacing coal with renewables.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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