November 2, 2021
It is fantastic to join you today.
For the benefit of full disclosure, I’m very attached to putting a price on carbon.
Why am I so attached to it? To quote the very famous Scotsman Adam Smith, the father of economics, because of self-interest—and putting a price on carbon generates self-interest.
So, the good news is we are climbing up in terms of the number of jurisdictions adopting a carbon price. Recently, Uruguay introduced a carbon price of $120 per ton.
The not-so good news is the average global price of carbon today is around $3 per ton.
If we are to make a dent on emissions in a meaningful way and retain our hope of a keeping temperatures within 1.5 degree-or close to 1.5 degrees—we have to reach $75 a ton or more.
How can the IMF help get from ‘here’ to ‘there’?
We have proposed an international carbon price floor as a way to first ensure large emitters have compatible carbon pricing.
What we suggest is that we make it equitable. In other words, it is a differentiated price—depending on the level of development. It is lower for low-income countries, higher for middle income countries. And somewhat higher again for rich economies.
We also want this international carbon floor carbon price floor to be pragmatic. We believe that a carbon tax is the best way to go. It is most efficient.
But carbon trading also delivers incentives for innovation. And—as we as we heard from the President of the European Commission—it works.
We also would like to build a tent that is even bigger than tax and trade—and allow for regulatory equivalency of a carbon price for those jurisdictions where it is not yet politically possible to move forward with pricing.
So, the work we need to do is to create equivalency of development level and equivalency of instruments.
I am optimistic.
Why? Because if we don’t do this—as Ursula said—there will have to be border adjustment mechanisms. That would be a huge headache. And it would be also much less efficient than if we all move to adopt a carbon price regime with equivalencies that make it work.