Fiscal Implications of Global Decarbonization

Simon Black, Ruud de Mooij, Vitor Gaspar, Ian Parry and Karlygash Zhunussova

No 2024/045, IMF Working Papers from International Monetary Fund

Abstract: Internationally coordinated climate mitigation policies can effectively put the world on a path toward achieving the agreed Paris temperature goals. Such coordination could be initiated by large players, such as China, the US, India, the African Union, and the European Union. We find that the implications for fiscal revenues over time will be shaped by a combination of rising carbon prices, the gradual erosion of existing fuel tax bases, and possible revenue sharing arrangements. Public spending rises during the transition to build green public infrastructure, promote innovation, and support clean technology deployment. Countries will also need financing for compensating vulnerable households and industries, and to transfer funds to poor countries. With well-designed climate-fiscal policy relying on carbon pricing, global decarbonization will have anything from moderately positive to moderately negative impacts on fiscal balances in high-income countries. For middle and low-income countries, net fiscal impacts are generally positive and can be significant. Revenue sharing at the global level would make an historical contribution to breaching the financial divide between rich and poor countries.

Keywords: Climate mitigation policy; Fiscal impact; Global coordination; Carbon pricing; climate policy assessment tool; decarbonization scenario; sectoral mitigation option; climate-fiscal policy; Greenhouse gas emissions; Climate policy; Carbon tax; Global; Europe (search for similar items in EconPapers)
Pages: 36
Date: 2024-03-01
New Economics Papers: this item is included in nep-ene and nep-env
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