September 2014: The International Monetary Fund (IMF) has released a working paper, titled ‘How Much Carbon Pricing is in Countries’ Own Interests? The Critical Role of Co-Benefits.’ The paper assesses, for the top 20 emitting countries, the degree to which carbon pricing is in countries’ national interests by analyzing domestic co-benefits before even considering climate benefits.

The paper, finds that carbon pricing is practical, raises revenue enabling tax reductions in other areas, and is often in countries’ national interests, implying that countries need not wait for an international agreement to implement carbon-pricing schemes.

The efficiency argument for such schemes is based on: weak prospects for internalizing other externalities through alternative pricing instruments; and productive use of carbon pricing revenues.

The report shows that nationally efficient prices are, on average, US$57.5 per ton of carbon dioxide (for year 2010), reflecting mainly health co-benefits from decreased air pollution at coal plants and lower automobile externalities. Carbon pricing through taxes or trading systems with allowance auctions would also raise significant government revenues, which could be used to lower other tax obligations.

In addition, the paper finds that prices and co-benefits vary significantly from country to country. For example, prices are relatively high in China and Poland, where exposure to pollution is significant, and low in places like Australia, where exposure is less severe, indicating that any international regime should be flexible, allowing some countries (with more co-benefits) to set higher prices than others. For example, taxing the carbon content of coal will increase its price, and decrease its use, leading to both lower emissions and improved public health due to cleaner air. It would also increase motor fuel prices, reducing traffic congestion and accidents as people economize on vehicle use.

These findings complement, among others, the recent report by the Global Commission on the Economy and Climate, ‘The New Climate Economy.’ [Publication: How Much Carbon Pricing is in Countries’ Own Interests? The Critical Role of Co-Benefits] [World Economic Forum Blog Post] [IISD RS Story on The New Climate Economy Report]