Publication - Cooperating to Address Climate Change with Pricing and Non-Pricing Measures

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Cooperating to Address Climate Change with Pricing and Non-Pricing Measures
Task Force on Climate, Development and the IMF
Xiaobei He, and Marilou Uy
Published in
July 2023
The world needs more ambitious collective policy actions to reach net-zero emissions by

2050. The International Monetary Fund (IMF) proposes internationally coordinated carbon price floors – with levels adjusted to levels of development – as ideal climate mitigation instruments. In reality, the implementation of explicit carbon pricing systems at required levels and scale have been limited. Many countries, in particular developing countries, are opting instead for alternative non-explicit price measures and non-pricing regulations that work better within their economic, social and political contexts. Theoretical arguments have also strengthened the case for implementing a mix of pricing and non-pricing instruments. This policy brief discusses a pragmatic way to foster international cooperation on climate mitigation by recognizing the contribution to carbon emission reduction of diverse policy measures, especially noting the preference of high greenhouse gas emitting developing countries for non-pricing measures. It draws on previous research from the Task Force on Climate, Development and the IMF, a consortium of experts primarily from the Global South utilizing empirical, rigorous research to advance a development-centered approach to climate at the IMF.

This research acknowledges that neglecting the impact of non-pricing measures is concerning to developing countries on two key fronts:

  • Carbon Border Adjustment Mechanisms (CBAMs): Developing countries can experience

negative spillover impacts on exports if CBAMs, such as the one adopted by the European Union, under-estimate the efforts of countries that use non-pricing climate instruments.

  • Overestimating carbon pricing revenues: Assuming the widespread use of carbon pricing

leads to the unrealistic expectation that it will provide the revenues to pay for the climate transition. This thinking, however, diminishes the need and urgency for international cooperation to raise climate financing, which is critical to support the climate transition in developing countries.

Against this background, this policy brief emphasizes the importance of facilitating global coordination of diverse climate mitigation actions beyond explicit carbon pricing. This will be a complex task, both technically and politically, that will require effective consultations to reach shared understanding among countries. This brief, therefore, outlines four recommendations that the IMF and other policymakers should consider as they develop methodologies to assess the impact of non-pricing instruments to coordinate climate actions globally. These include:

  • Providing policy advice that flexibly includes a mix of climate mitigation instruments to

engage with policymakers more effectively.

  • Undertaking an inclusive consultative process among advanced and developing countries

to develop a data base of key national climate mitigation measures and a better understanding of the impact of these measures on reducing carbon dioxide.

  • Developing widely accepted methodologies for countries to estimate the price-equivalent

of these measures to advance discussions on ambitious and globally coordinated policies.

  • Raising the urgency for global cooperation to scale up climate financing to support the
investments required for the climate transition.