Cover Staff Climate Notes
Carbon Taxes or Emissions Trading Systems?: Instrument Choice and Design
Author:
Ian W.H. Parrynull

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Mr. Simon Black
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Karlygash Zhunussova
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Series:
Staff Climate Notes
Volume/Issue:
Volume 2022: Issue 006
Language:
English
Publication Date:
21 Jul 2022
DOI:
https://doi.org/10.5089/9798400212307.066
ISBN:
9798400212307
ISSN:
2789-0600
Pages:
25
Keywords:
Climate change mitigation; Paris Agreement; carbon pricing; carbon tax; emissions trading system; design issues; instrument choice; IMF staff climate note; IMF staff climate NOTE 2022/006; Greenhouse gas emissions; Climate change; Global
Legal-disclaimer:
The IMF Notes Series aims to quickly disseminate succinct IMF analysis on critical economic issues to member countries and the broader policy community. The IMF Staff Climate Notes provide analysis related to the impact of climate change on macroeconomic and financial stability, including on mitigation, adaptation, and transition. The views expressed in IMF Staff Climate Notes are those of the author(s), although they do not necessarily represent the views of the IMF, or its Executive Board, or its management.
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Carbon pricing should be a central element of climate mitigation strategies, helping countries transition to ‘net zero’ greenhouse gas emissions over the next three decades. Policymakers considering introducing or scaling up carbon pricing face technical choices between carbon taxes and emissions trading systems (ETSs) and in their design. This includes administration, price levels, relation to other mitigation instruments, use of revenues to address efficiency and distributional objectives, supporting measures to address competitiveness concerns, extension to broader emissions sources, and coordination at the global level. Political economy considerations also affect the choice and design of instruments. This paper discusses such issues in the choice between and design of carbon taxes and ETSs, providing guidance, broader considerations, and quantitative analyses. Overall, carbon taxes have significant practical advantages over ETSs (especially for developing countries) due to ease of administration, price certainty to promote investment, the potential to raise significant revenues, and coverage of broader emissions sources—but ETSs can have significant political economy advantages.
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Cover Staff Climate Notes
Staff Climate Notes
Publisher:
International Monetary Fund
Volume 2022: Issue 006