A global carbon tax of US$75 per ton by 2030 would limit average global warming to 2.0°C, and any economic disruption that resulted could be offset by returning the proceeds to citizens, the International Monetary Fund concludes in a study released last week.
“Global warming causes major damage to the global economy and the natural world, and engenders risks of catastrophic and irreversible outcomes,” the IMF wrote in its semi-annual Fiscal Monitor report. “Implementation of existing commitments is therefore a first-step priority, but mechanisms to boost action at a global level are urgently needed.”
The report identified a global carbon tax as “the most comprehensive means of tackling global warming,” Reuters adds, “as it would make people and businesses reduce emissions, convert energy, or switch to greener power sources.” At $75 per ton, the IMF said a global tax would increase the cost of coal by 200%, of gasoline by 5% to 15% in most countries, and prevent 725,000 premature air pollution deaths in G20 countries by 2030, many of them in China.
“If you compare the average level of the carbon tax today, which is $2 [per ton], to where we need to be, it’s a quantum leap,” said Paolo Mauro, deputy director of the IMF’s fiscal affairs department. But “no environmental economist should disagree with the main argument of the paper,” added Resources for the Future climate policy specialist Marc Hafstead. “Carbon pricing is the single most powerful tool we have for reducing CO2 emissions from burning fossil fuels, and our current set of policies leaves us nowhere close to meeting our climate goals.”
Reuters says the IMF report recognized the fraught politics around introducing national carbon pricing systems, citing Sweden as a country that introduced tax cuts to offset its carbon price and France as a jurisdiction that incurred a public backlash over the “perceived unfairness of the tax”.
To make the system work, “finance ministers can play a key role by undertaking carbon taxation or similar pricing, adjusting broader tax and expenditure policy as part of a comprehensive strategy, ensuring adequate budgeting for investment in R&D and support for cleaner technologies, and coordinating strategies internationally,” the report stated.
For the United States, the Washington Post says, the IMF calculated that a carbon tax at $75 per ton would drive emissions down by nearly 30%, while increasing average costs by 53% for electricity and 20% for gasoline in 2030. “But it would also generate revenue equivalent to 1% of gross domestic product, an enormous amount of money that could be redistributed and, if spread equally, would end up being a fiscally progressive policy, rather than one disproportionately targeting the poor,” the Post adds, citing the report.
Several economists contacted by the Post said the IMF was aiming too low with its $75 per ton threshold for the tax.
“Their estimate is, in my view, if anything on the low side of what is needed,” wrote Nobel Prize-winning Yale economist William Nordhaus, who has argued for a price as high as US$300 per ton or more.
“The climate crisis is so dire, and public/popular determination to attack it is suddenly so strong and unquenchable, that even $75 per ton by 2030 seems far too moderate a target,” agreed Carbon Tax Center Director Charles Komanoff.