Fiscal policy has a critical role to play in mitigating greenhouse gas emissions and raising revenues for climate finance, fiscal consolidation, and other purposes. The Fiscal Affairs Department of the International Monetary Fund (IMF) has been working on the appropriate design of tax policy to meet these duel objectives.

Designing Mitigation Policies

The IMF is well positioned to provide technical assistance to countries interested in pricing greenhouse gas emissions and broader environmental/energy tax reforms. In September 2011, the IMF held a meeting where experts discussed a forthcoming volume of papers providing guidance on various aspects of fiscal policy design.

Questions addressed included, for example:

  • How policymakers can think about the appropriate level of emissions pricing, from the long‐term perspective of stabilizing the global climate system and also incorporating environmental damages into the price of fuels, energy, and so on;
  • Why emissions pricing instruments (carbon taxes, emissions trading systems) are easily the most promising policies for exploiting emissions reduction opportunities across the economy and promoting the development of clean technologies and their transfer to developing countries;
  • How emissions pricing instruments are best designed in terms of covering emissions sources, recycling revenues to best benefit the economy, and improving the prospects for their implementation;
  • What lessons policymakers can learn from experience with carbon pricing policies to date from the EU Emissions Trading System, regional initiatives in the United States, and carbon taxes, to the prospective carbon pricing program in Australia;
  • How low‐cost options for sequestering carbon dioxide in the forestry sector can be exploited under carbon pricing regimes;
  • How carbon pricing instruments might be designed for developing countries.