A global agreement to make fossil fuel burning more expensive is urgent and the most efficient way of fighting climate change, an International Monetary Fund study found on Thursday.
The group found that a global tax of $75 per ton by the year 2030 could limit the planet’s warming to 2 degrees Celsius (3.6 degrees Fahrenheit), or roughly double what it is now.
That would greatly increase the price of fossil-fuel-based energy — especially from the burning of coal — but the economic disruption could be offset by routing the money raised straight back to citizens.
“If you compare the average level of the carbon tax today, which is $2 [a ton], to where we need to be, it’s a quantum leap,” said Paolo Mauro, deputy director of the fiscal affairs department at the IMF.
The IMF report comes out as financial institutions increasingly grapple with the risks associated with climate change, including damage from sea-level rise, extreme weather events and billions in fossil fuel reserves that might be in excess of what can be burned while also limiting warming.
The Federal Reserve, for example, is taking a closer look at how climate change may pose a risk to economic stability.
In the United States, a $75 tax would cut emissions by nearly 30 percent but would cause on average a 53 percent increase in electricity costs and a 20 percent rise for gasoline at projected 2030 prices, the analysis in the IMF’s Fiscal Monitor found.
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But it would also generate revenue equivalent to 1 percent of gross domestic product, an enormous amount of money that could be redistributed and, if spread equally, would end up being a fiscally progressive policy, rather than one disproportionately targeting the poor.
The impact of a $75-per-ton tax would also hit countries differently depending on burning or exporting coal, which produces the most carbon emissions per unit of energy generated when it is burned.’
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