An Analysis of the IMF’s International Carbon Price Floor

He Xiaobei (), Zhai Fan and Ma Jun
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He Xiaobei: 535182 National School of Development, Peking University , Beijing, 100871, China
Zhai Fan: ASEAN+3 Macroeconomic Research Office, Singapore, Singapore
Ma Jun: Beijing Institute for Finance and Sustainability, Beijing, China

Journal of Globalization and Development, 2024, vol. 15, issue 2, 95-112

Abstract: The International Monetary Fund (IMF) has proposed an International Carbon Price Floor (ICPF) arrangement among six major emitting economies (the US, EU, UK, Canada, China, and India) to scale up global climate mitigation action. Our quantitative analysis of the IMF’s ICPFs indicates that, compared to the committed policies of National Determined Contributions (NDCs), differentiated price floors are non-binding for developed countries – and therefore have a limited impact on their climate actions. However, for developing countries (e.g. China and India), the ICPFs effectively translate into substantial increases in carbon prices. Essentially, the ICPFs place additional responsibilities of emission reductions and economic costs fully on China and India. Given this gap between the participation incentives of developed and developing economies, we believe that the ICPF arrangement, in its current form, is unlikely to be adopted by major economies. To address this, we recommend that the IMF devote efforts to: (1) estimating the price equivalents of non-price policy instruments, as well as re-calibrating the desirable floors for broadly defined carbon prices; and (2) considering options to redistribute the economic benefits between developed and developing countries by increasing the availability of climate mitigation funds and low-carbon technologies to developing countries.

Keywords: climate action; international carbon price floor; burden sharing (search for similar items in EconPapers)
JEL-codes: E20 F10 Q54 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/jgd-2023-0102

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