IMF looks to tackle climate change through carbon pricing minimums

Fund is proposing $75-per-tonne price on carbon for wealthy countries

The IMF has said an international carbon price floor offers a 'realistic prospect' to combat climate change. AFP

Can market mechanisms be used to effectively combat climate change? The International Monetary Fund believes so.

A new paper released by IMF researchers proposes creating an international carbon price floor in an effort to reduce greenhouse gases and carbon emissions over the next decade.

Under the Paris Agreement, countries have committed to reaching net-zero emissions by 2050.

But the IMF says more needs to be done in the immediate future to prevent the global temperature from rising 2°C above pre-industrial standards.

This is the point at which scientists say the already considerable effects of climate change will become even more devastating.

The IMF says to keep global warming below 2 degrees, carbon emissions need to be cut between a quarter to a half by 2030.

That’s a tall order – and one that would be difficult to achieve if it required every country in the world to get on board.

Instead, the IMF proposes creating a carbon price floor of around $75 per tonne for only a handful of the wealthiest and highest-emitting countries.

The average global emissions price is currently $3 per tonne.

“First, it would focus on a small number of large emitters, such as some or all G20 countries,'' Kristalina Georgieva, managing director of the IMF, told an event at the Brookings Institution, in Washington, on climate co-operation.

“This 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 we need.”

If China, India, the US, EU, UK and Canada – which are expected to contribute more than two thirds of carbon emissions by 2030 – commit to a $75-per-tonne price floor, that could help reduce emissions by 23 per cent.

Ms Georgieva told Friday's Brookings event that the proposed carbon pricing floor agreement would be “flexible, pragmatic and equitable and account for different responsibilities across countries with different pricing based on different development levels and historical emissions".

A pricing floor would be different from a carbon tax, in that it could “work through other policy measures – such as regulation or emissions trading – that achieve equivalent outcomes," she said.

Pointing to recent collaborative efforts countries have taken to combat the Covid-19 pandemic and to jump-start the world economy, Ms Georgieva says that when needed, consensus and agreement can be reached.

She hopes same can be said for an international carbon price floor.

The Paris Agreement was signed by 195 parties in 2016. Countries are currently submitting revised pledges ahead of November's Cop26 Glasgow climate conference in Scotland.