Climate

Now Is The Time For A Carbon Tax, IMF Chief Says

CREDIT: AP PHOTO/RODRIGO ABD

Have we reached a tipping point towards putting a price on carbon?

The head of the International Monetary Fund (IMF) called for a carbon tax late Wednesday at the IMF/World Bank annual meeting in Lima, Peru. Meanwhile, reports show that more and more places are adopting carbon taxes, in largely successful efforts to use market forces to increase clean energy development.

Climate change is now a “macro-critical” issue, IMF managing director Christine Lagarde said. The wording there is important, because the IMF defines macro-critical issues as “either critical to the achievement of macroeconomic program goals or necessary for the implementation of specific provisions under the IMF’s Articles of Agreement,” the Sierra Club noted Thursday.

“The IMF has correctly recognized, after taking a sober look at major threats to the long term stability of all countries, that a changing climate poses threats to the stability and vitality of the world’s economies,” Steve Herz, a senior attorney with Sierra Club’s International Climate Program, said in a statement emailed to ThinkProgress.

This is just the latest in the IMF’s commentary on the economic damage caused by systems that support fossil fuels. The IMF — whose “primary purpose is to ensure the stability of the international monetary system” — made headlines earlier this year when it reported that governments spend $5.3 trillion in fossil fuel subsidies annually.

“Lagarde’s comprehensive climate change agenda for the IMF is historic both for its content, and for its timing ahead of international climate negotiations this summer in Paris,” Herz said.

Lagarde referred to the problem of energy subsidies again Wednesday during the organization’s Conversation on Climate Change. “Now is the time to phase out energy subsidies,” she said.

The IMF, which carries out its mission through monitoring, lending, and technical assistance, cannot invest directly. “What we can do is certainly provide strong advocacy for things such as removing subsidies that actually go to the wrong pockets. What we can do is provide tools for countries to actually set the right prices, including externalities,” Lagarde said.

Phasing out energy subsidies, such as the United States’ tax incentives on oil and gas exploration, might prove harder than adding a carbon tax — a program that has already proven successful across a wide swath of economies.

There are 40 countries and more than 20 cities, states and regions, that already have or have planned carbon prices, covering about 12 percent of greenhouse gas emissions, according to a report released Thursday by the New Climate Economy.

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According to that report, carbon pricing works, and it would work even better if governments raised the cost to polluters.

There are myriad examples of carbon tax programs that have worked. The Regional Greenhouse Gas Initiative, for instance, which includes nine northeastern states, is credited with adding $1.3 billion to the economy there, while saving consumers $460 million in energy costs.

There are a number of ways to structure carbon pricing. Revenue from RGGI, for instance, goes back into state funds that support investment in efficiency and clean energy programs. That is essentially the structure Lagarde supported, with revenues going internationally to support renewable energy in developing nations, which have been promised $100 billion to help reach emissions reduction targets.

But for years economists in the United States have called for a revenue neutral carbon tax. Under this type of program, carbon emitters would be taxed, but the money would not go into government coffers. Instead, the revenue would be returned to consumers, most likely as a tax rebate.

Revenue neutral carbon taxes appeal to free-market conservatives because they do not increase the size of government, as well as climate change activists, who see them as an effective deterrent to continued investment in carbon-intensive energy sources.

However the plan is structured, advocates of carbon pricing want to strike while the iron is hot — and prices are low.

“Conditions are now particularly favorable for both carbon pricing and fossil fuel consumption subsidy reform due to the fall in global oil prices over the last year, combined with lower gas and coal prices,” the report says.

“The time is right to introduce carbon prices around the world, as well as to pursue complementary measures like reform for fossil fuel subsidies, which act like negative carbon prices,” Lord Nicholas Stern, co-chair of the Global Commission on the Economy and Climate, the parent organization of the New Climate Economy, said in a statement. “The world economy is undergoing a remarkable period of transition, and we need to act now to avoid locking ourselves into unsustainable development patterns.”