IMF Working Papers

The Great Carbon Arbitrage

By Tobias Adrian, Patrick Bolton, Alissa M. Kleinnijenhuis

June 1, 2022

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Tobias Adrian, Patrick Bolton, and Alissa M. Kleinnijenhuis The Great Carbon Arbitrage, (USA: International Monetary Fund, 2022) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We measure the gains from phasing out coal as the average social cost of carbon times the quantity of avoided emissions. By comparing the present value of benefits from avoided emissions against the present value of costs of ending coal and replacing it with renewables, our conservative baseline estimate is that the world can realize a net gain of $85 trillion. This global net social benefit can be attained through an international agreement to phase out coal. We also explore how this net benefit is distributed across countries and find that most countries would benefit from a global coal phase-out even without any compensatory cross-country transfers. Finally, we estimate the size of public funds that must be committed under a blended finance arrangement to finance the cost of replacing coal with renewables.

Subject: Arbitrage, Climate finance, Commodities, Environment, Greenhouse gas emissions, Non-renewable resources, Renewable energy

Keywords: Africa, Arbitrage, Baseline estimate, Carbon, Carbon arbitrage, Climate, Climate finance, Climate Policy, Coal company, Country cost, Environment, Financial Economics, Financing policy, Global, Greenhouse gas emissions, Investment cost, Net benefit, Net gain, Non-renewable resources, North America, Renewable energy, Valuation of Environmental Effects

Publication Details

  • Pages:

    67

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/107

  • Stock No:

    WPIEA2022107

  • ISBN:

    9798400210532

  • ISSN:

    1018-5941

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