Implementing the United States’ Domestic and International Climate Mitigation Goals: A Supportive Fiscal Policy Approach

IMF Working Papers, March 3, 2021

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The United States has pledged to become carbon neutral by 2050 and to meet sectoral objectives (e.g., for carbon free power, electric vehicles) while encouraging greater mitigation among large emitting countries and of international transportation emissions.
Fiscal policies at the national, sectoral, and international level could play a critical role in implementing these objectives, alongside investment, regulatory, and technology policies.
Fiscal instruments are cost-effective, can enhance political acceptability, and do not worsen, or could help alleviate, budgetary pressures.

A fiscal policy package could contain a mix of:
- Economy-wide carbon pricing.
- Revenue-neutral feebates (i.e., tax-subsidy schemes) with the latter reinforcing mitigation in the transport, power, industrial, building, forestry, and agricultural sectors.

A carbon price floor among large emitters (with flexibility to implement equivalent measures) could effectively scale up global mitigation.
Levies/feebates offer a practical approach for reducing maritime and aviation emissions.

Fiscal instruments:
- Are cost-effective.
- Can enhance political acceptability.
- Do not worsen, or could help alleviate, budgetary pressures.

Subject: Carbon tax, Economic sectors, Environment, Fuel prices, Greenhouse gas emissions, Natural gas sector, Non-renewable resources, Prices, Taxes
Keywords: Africa, carbon neutrality, carbon price floor, carbon pricing, Carbon tax, Climate change, cost increase, efficiency cost o n, emission rate, feebate scheme, feebate variant, feebates, fuel economy, Fuel prices, Global, Greenhouse gas emissions, international aviation and maritime, international aviation and maritime., mitigation cost, Natural gas sector, Non-renewable resources, sliding scale, US climate mitigation, WP

IMF Working Paper by Ian W.H. Parry, March 3, 2021.