IMF staff proposes carbon-price floor to tackle global warming

WASHINGTON DC: Citing reason that climate change presents huge risks to the functioning of the world’s economies, staff of International Monetary Fund (IMF) have proposed a carbon-price floor. In a paper published on June 11, the staff of the organisation proposed the idea of one option different minimum carbon-price levels for countries based on their stage of development. This proposal parallels the debate on a minimum global corporate-tax rate, and it is still under discussion among the executive board and members of IMF.

The proposal talks about implementing a three-tier price floor among the United States of America, European Union, United Kingdom, Canada, China, and India, with prices of $75 a ton for advanced markets, $50 a ton high income markets, and $25 a ton for low-income markets. It hopes that this could help cut global emissions 23 per cent from baseline levels by 2030. This, in turn can greatly enhance the effectiveness of the Paris Agreement goal, which dictates keeping the temperature increase to below 2 degrees Celsius.

Kristalina Georgieva, Managing Director, IMF, remarked that focusing on a small number of large emitters would make negotiations easier and could still cover a big percentage of global emissions, thereby taking a major step towards the cuts in greenhouse gases the world need. She added that tax is one option for achieving the price floor, however, it could also work through regulation or emissions trading. The revenues thus created could be used to compensate households for price increases and supporting businesses and workers in moving from high carbon activities to activities with low carbon intensity.

According to IMF staff, there is need for rise in global price to $75 a ton or more by 2030 if we are to limit the global warming to 1.5-2 degrees Celsius. Presently, the global average emissions price is $3 a ton and around four-fifths of global emissions remain unpriced.