In just six weeks, world leaders will meet in Paris to negotiate a new global climate-change agreement. To date, 150 nations have submitted plans detailing how they would move their economies along a more resilient low-carbon trajectory. These plans represent the first generation of investments to be made to build a competitive future without the dangerous levels of carbon-dioxide emissions that are now driving global warming.
The transition to a cleaner future would require both government action and the right incentives for the private sector.
At the center should be a strong public policy that puts a price on carbon pollution. Placing a higher price on carbon-based fuels, electricity and industrial activities would create incentives for the use of cleaner fuels, save energy and promote a shift to greener investments. Measures such as carbon taxes and fees, emissions-trading programs and other pricing mechanisms, and removal of inefficient subsidies can give businesses and households the certainty and predictability they need to make long-term investments in climate-smart development.
At the IMF, the focus is on reforming its member nations’ fiscal systems to raise more revenue from taxes on carbon-intensive fuels and less revenue from other taxes that are detrimental to economic performance, such as taxes on labor and capital. Pricing carbon can be about smarter, more efficient tax systems, rather than higher taxes.
Carbon taxes should be applied comprehensively to emissions from fossil fuels. The price must be high enough to achieve ambitious environmental goals, in alignment with national circumstances, and it must be stable, to encourage businesses and households to invest in clean technologies. Administering carbon taxes is straightforward and can build on existing road fuel taxes, which are well-established in most nations.
Carbon pricing would be in many nations’ best interests, owing to the many domestic environmental benefits. For example, burning cleaner fuels helps to reduce air pollution, which, according to the WHO, currently causes about 3.7 million premature deaths a year.
It is vitally important to address the impact of energy-price reforms on vulnerable groups in every society. So these reforms would need to be accompanied by adjustments to fiscal systems and safety nets, among other things, to ensure that the poor are not harmed.
The World Bank Group is supporting nations and businesses as they develop climate-friendly public policies, invest in carbon markets and explore financial innovations to ease into low-carbon transitions. The group is leveraging its experience and global reach for learning and knowledge exchange through programs like the Partnership for Market Readiness.
From that experience, we have developed, alongside the Organisation for Economic Co-operation and Development, initial principles to help guide and inspire future carbon-pricing schemes. By drawing on these principles, nations, regions, states and businesses can move faster to tackle the climate challenge confronting us all. The principles are based on fairness; alignment of policies and objectives; stability and predictability; transparency; efficiency and cost-effectiveness; and reliability and environmental integrity.
To help achieve our climate objectives, we need to promote dialogue about the necessary policy measures before and beyond the climate-change conference in Paris. That is why we are announcing a “Carbon Pricing Panel,” which is to bring together heads of state, city and state leaders, and representatives of top companies to urge nations and businesses around the world to put a price on carbon.
These leaders have taken steps to price carbon pollution and catalyze greener investment in their own nations and regions. They include German Chancellor Angela Merkel, Chilean President Michelle Bachelet, French President Francois Hollande, Ethiopian Prime Minister Hailemariam Desalegn, Philippine President Benigno Aquino III, Mexican President Enrique Pena Nieto, California Governor Jerry Brown and Rio de Janeiro Mayor Eduardo Paes.
Carbon pricing policies are already being implemented by about 40 national governments, including that of China, the world’s largest emitter, and 23 cities, states and regions that are putting a price on carbon. Many other governments also are reforming energy prices, and more than 400 companies report using a voluntary, internal carbon price. That makes sense. Top companies must effectively manage exposure to climate risk in order to generate higher profits and ensure more stable earnings.
All of these actions are welcome, but we view them as being only initial steps. Together with the leaders of the Carbon Pricing Panel, we call on governments to seize the moment — for the sake of the planet and future generations — to put a price on carbon pollution that reflects the environmental damage it causes. We stand ready to support governments that act. The longer we wait, the costlier and more difficult it will be for us to protect the planet.
Christine Lagarde is managing director of the IMF. Jim Yong Kim is president of the World Bank Group.
Copyright: Project Syndicate
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