Christina Lagarde International Monetary Fund/Flickr

The Path to Carbon Pricing

The transition to a cleaner future will require both government action and the right incentives for the private sector. At the center should be strong public policy that puts a price on carbon pollution.

WASHINGTON, DC – In just six weeks, world leaders will meet in Paris to negotiate a new global climate-change agreement. To date, 150 countries have submitted plans detailing how they will move their economies along a more resilient low-carbon trajectory. These plans represent the first generation of investments to be made in order to build a competitive future without the dangerous levels of carbon-dioxide emissions that are now driving global warming.

The transition to a cleaner future will require both government action and the right incentives for the private sector. At the center should be a strong public policy that puts a price on carbon pollution. Placing a higher price on carbon-based fuels, electricity, and industrial activities will create incentives for the use of cleaner fuels, save energy, and promote a shift to greener investments. Measures such as carbon taxes and fees, emissions-trading programs and other pricing mechanisms, and removal of inefficient subsidies can give businesses and households the certainty and predictability they need to make long-term investments in climate-smart development.

At the International Monetary Fund, the focus is on reforming its member countries’ fiscal systems in order to raise more revenue from taxes on carbon-intensive fuels and less revenue from other taxes that are detrimental to economic performance, such as taxes on labor and capital. Pricing carbon can be about smarter, more efficient tax systems, rather than higher taxes.

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