Fiscal Implications of Global Decarbonization

By Simon Black, Ruud de Mooij, Vitor Gaspar, Ian W.H. Parry, Karlygash Zhunussova

March 1, 2024

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Format: Chicago

Simon Black, Ruud de Mooij, Vitor Gaspar, Ian W.H. Parry, and Karlygash Zhunussova. Fiscal Implications of Global Decarbonization, (USA: International Monetary Fund, 2024) accessed November 21, 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

Internationally coordinated climate mitigation policies can effectively put the world on a path toward achieving the agreed Paris temperature goals. Such coordination could be initiated by large players, such as China, the US, India, the African Union, and the European Union. We find that the implications for fiscal revenues over time will be shaped by a combination of rising carbon prices, the gradual erosion of existing fuel tax bases, and possible revenue sharing arrangements. Public spending rises during the transition to build green public infrastructure, promote innovation, and support clean technology deployment. Countries will also need financing for compensating vulnerable households and industries, and to transfer funds to poor countries. With well-designed climate-fiscal policy relying on carbon pricing, global decarbonization will have anything from moderately positive to moderately negative impacts on fiscal balances in high-income countries. For middle and low-income countries, net fiscal impacts are generally positive and can be significant. Revenue sharing at the global level would make an historical contribution to breaching the financial divide between rich and poor countries.

Subject: Carbon tax, Climate policy, Environment, Greenhouse gas emissions, Taxes

Keywords: Carbon pricing, Carbon tax, Climate mitigation policy, Climate policy, Climate policy assessment tool, Climate-fiscal policy, Decarbonization scenario, Europe, Fiscal impact, Global, Global coordination, Greenhouse gas emissions, Sectoral mitigation option

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/045
Stock No:

WPIEA2024045
ISBN:

9798400269516
ISSN:

1018-5941

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