Cooperating to Address Climate Change with Pricing and Non-Pricing Measures

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The world needs more ambitious collective policy actions to reach net-zero emissions by 2050. The International Monetary Fund (IMF) proposes internationally coordinated carbon price floors – adjusted to levels of development – as ideal climate mitigation instruments. In reality, the implementation of explicit carbon pricing systems at required levels and scale have been limited.

new policy brief by Xiaobei He and Marilou Uy for the Task Force on Climate, Development and the IMF discusses a pragmatic way to foster international cooperation on climate mitigation by moving beyond pricing tools to include non-pricing measures.

Neglecting the impact of non-pricing measures is concerning to developing countries on two key fronts:

  • Carbon Border Adjustment Mechanisms (CBAMs): Developing countries can experience negative spillover impacts on exports if CBAMs, such as the one adopted by the European Union, under-estimate the efforts of countries that use non-pricing climate instruments.
  • Overestimating carbon pricing revenues: Assuming the widespread use of carbon pricing leads to the unrealistic expectation that it will provide the revenues to pay for the climate transition. This thinking, however, diminishes the need and urgency for international cooperation to raise climate financing, which is critical to support the climate transition in developing countries.

Moving beyond explicit carbon pricing will be a complex task, both technically and politically. Given this, the authors outline four policy recommendations that the IMF and multilateral forums should consider as they develop methodologies to assess the impact of non-pricing instruments to better coordinate climate actions globally. 

Policy recommendations:
  • Providing policy advice that flexibly includes a mix of climate mitigation instruments to engage with policymakers more effectively.
  • Undertaking an inclusive consultative process among advanced and developing countries to develop a database of key national climate mitigation measures and a better understanding of the impact of these measures on reducing carbon dioxide.
  • Developing widely accepted methodologies for countries to estimate the price-equivalent of these measures to advance discussions on ambitious and globally coordinated policies.
  • Raising the urgency for global cooperation to scale up climate financing to support the investments required for the climate transition.

An unprecedented challenge requires unprecedented cooperation. This means being keenly aware of country circumstances while developing climate policy and drawing on all the tools available to ensure a low-carbon transition that is both swift and just.

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