The October 2019 edition of the International Monetary Fund’s (IMF) Fiscal Monitor focuses on the design of fiscal policies for climate mitigation at the domestic and international level.

The report argues that, of the various mitigation strategies to reduce fossil fuel CO2 emissions, carbon taxes—levied on the supply of fossil fuels (for example, from oil refineries, coal mines, processing plants) in proportion to their carbon content—are the most powerful and efficient, because they allow firms and households to find the lowest-cost ways of reducing energy use and shifting toward cleaner alternatives.

The report acknowledges that the burden of the tax in proportion to household consumption is moderately larger for lower-income households than for higher-income households in some countries (for example, China and the United States). But, it is roughly equal or slightly smaller in others (Canada, India).

To make carbon taxes politically feasible and economically efficient, the report argues governments need to choose how to use the new revenue. Options include cutting other kinds of taxes, supporting vulnerable households and communities, increasing investment in green energy, or simply returning the money to people as a dividend.

The report can be downloaded here.



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