IMF calls for differentiated carbon pricing floor to curb emissions

Under the proposed model, the carbon price floor would be higher for rich nations than for poor and middle-income countries

Smoke rising from chimneys at the Suralaya coal power plant in Cilegon. Should temperatures rise more than 3°C above pre-industrial levels the global economy is expected to shrink by 18 per cent. AFP

The International Monetary Fund has called for a “more equitable” carbon price floor to help contain carbon emissions based on the stage of an economy's development.

“We have proposed an international carbon price floor as a way to first ensure large emitters have compatible carbon pricing,” the fund's head Kristalina Georgieva said on Tuesday.

“What we suggest is that we make it equitable. In other words, it is a differentiated price – depending on the level of development. It is lower for low-income countries, higher for middle-income countries, and somewhat higher again for rich economies.”

The Washington-based multilateral lender has been vocal in calling for a higher price of carbon. The IMF has proposed a minimum price of $75 per tonne to help the world contain the warming of the planet to 1.5°C above pre-industrial levels

The proposal for more equitable pricing follows calls by India, the world's third-largest emitter, urging rich countries to pay more for carbon emissions.

India's Prime Minister Narendra Modi told heads of state gathered at Cop26 this week that rich nations needed to carry more of the burden when it comes to offsetting emissions.

“It is India’s expectation that the world’s developed nations make $1 trillion available as climate finance as soon as possible,” he said at the climate change summit in Glasgow.

“Justice would demand that those nations that have not kept their climate commitments should be pressured,” Mr Modi said.

An international carbon price floor – as proposed by the IMF – could help reduce global carbon emissions by 12.3 per cent by 2030, according to a report by the World Economic Forum and consultancy PwC.

The introduction of a carbon pricing mechanism is set to impact gross domestic product by less than 1 per cent. However, the cost is minimal when compared with the huge losses to be incurred by the global economy should global warming continue unabated.

If temperatures rise more than 3°C above pre-industrial levels, the global economy is expected to shrink by 18 per cent.

“The findings of our analysis are very encouraging,” said Bob Moritz, global chairman at PwC.

“The political and technical challenges remain very significant, but we hope the research will encourage countries to consider pricing carbon in such a way that it scales up the effort to reach net zero in time to limit the worst effects of climate change on people and our planet,” he added.