Fiscal policies for Paris climate strategies – from principle to practice | Ian Parry
Ian Parry leads the environment, climate, and energy program in the Fiscal Affairs Department of the IMF. Ian will be presenting a new IMF Board paper on fiscal policy and climate change that will be released May 6.
The IMF has just released a paper “Fiscal Policies for Paris Climate Strategies—From Principle to Practice.” The paper discusses the role of, and provides practical, country-level guidance on, fiscal policies for implementing climate strategies submitted by 190 parties for the Paris Agreement. On the mitigation side, a spreadsheet tool provides emissions projections for 135 countries along with estimates of the emissions, fiscal, local health, and economic welfare impacts of carbon taxation and the trade-offs with other instruments such as emissions trading systems, taxes on individual fuels, and incentives for energy efficiency. Comprehensive carbon pricing is the most effective policy for reducing emissions and mobilizing revenue though other instruments can have an important role, perhaps due to constraints on the political acceptability of pricing. The paper also discusses the possibility of reinforcing the Paris process through regional or international carbon price floors. On the adaptation side, the paper emphasizes the importance of a holistic strategy including, in addition to physical climate-proofing investments, risk diversification and integration of climate risks, fiscal buffers and climate investments into macro-fiscal frameworks.