Major emitters need complementary agreement on carbon pricing, says IMF

Economy Materials 27 April 2024 09:41 (UTC +04:00)
Major emitters need complementary agreement on carbon pricing, says IMF
Laman Zeynalova
Laman Zeynalova
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WASHINGTON, U.S., April 27. Major emitters need a complementary agreement on carbon pricing, IMF spokesperson told Trend on the sidelines of the Spring Meetings held from April 15 to April 20 in Washington D.C.

“Wherever climate policy intersects with macroeconomic policy, the IMF is here to help. We help our members address those challenges of climate change for which fiscal, financial, and macroeconomic policies are an important component of the appropriate policy response, including how best to capture the opportunities of low-carbon, resilient growth,” said the spokesperson.

The Fund is supporting macro-resilience, delivering policy advice and capacity development support to help identify and implement strong climate policies, and providing long-term lending to address long term challenges in the most vulnerable countries.

“Through our new lending instrument, the Resilience and Sustainability Trust (RST), the IMF provides long-term financing to low and vulnerable middle-income countries to address climate challenges. In RSF (Resilience and Sustainability Facility) recipient countries, the Fund is also convening multilateral development banks, international financial institutions, bilateral donors, and private investors to help these countries explore options for crowding in private climate finance,” noted the spokesperson.

For its wider membership, IMF adds a climate lens to its economic surveillance, capacity development and data: a transmission line to share policy analysis and advice wherever needed. Macroeconomic and financial sector policies are a critical component of the green transition -- including the opportunities of low-carbon, resilient growth, and jobs.

“This underscores the importance of international cooperation. Such cooperation is needed at two levels – first among IFIs (International Financial Institution), regulatory bodies and standard setters to devise policies, regulations, disclosures, and taxonomies that are interoperable, and second among MDBs (Multilateral development banks), donors and private sector to set risk sharing mechanisms that would facilitate scaling up of climate finance. If we fail to stabilize our climate, all countries will suffer, so each country must contribute all it can. The more we delay, the higher the costs and the worse the outcome for the next generations,” said the spokesperson.

IMF believes that carbon pricing should be an integral part of a well-designed policy mix, complemented with public investment support and sectoral policies, such as feebates, regulations or tradable performance standards.

“Fiscal incentives are also needed for broader emissions sources including methane, forestry, and agriculture.
Momentum for carbon pricing is increasing globally, though there are large cross-country differences in coverage rates and prices. Carbon pricing is operating in nearly 50 countries. We see some progress in carbon pricing generally. Globally, there's coverage that currently stands at about 25% of emissions, up from about 10% about a decade ago. But we would like to see that significantly accelerated and that would require a complementary agreement between the major emitters,” the spokesperson explained.

In this regard, IMF has recommended for a couple of years now that countries agree on an international carbon price floor, that would be complementary to the Paris Agreement, specifically, an international carbon price floor (ICPF) among major emitters.

“Even if a smaller group of just six major emitters were included (Canada, China, European Union, India, United Kingdom, United States) that would close much of the implementation gap. For countries where pricing is unlikely, alternative policies that achieve equivalent emissions cuts could be accommodated. This would also send a very powerful signal to other countries to also adopt similar instruments.

Predicting when an international policy coordination mechanism like a price floor arrangement might emerge, who will participate in it, and what form it will take is speculative,” the spokesperson concluded.