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How Much Carbon Pricing is in Countries’ Own Interests?
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How Much Carbon Pricing is in Countries’ Own Interests?

The Critical Role of Co-Benefits

Ian Parry, Chandara Veung and Dirk Heine
IMF, 2014
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Editorial Rating

8

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  • Innovative

Recommendation

The focus on saving the planet from rising carbon dioxide emissions has, unfortunately, masked the fact that carbon taxes might also be good for countries in the short run, resulting in better health for their citizens and greater economic activity. How much should each nation tax carbon purely in its own self-interest? Economists Ian Parry, Chandara Veung and Dirk Heine plot the numbers for the top 20 CO2 emitters, and their results are surprising. getAbstract recommends this thoughtful paper for its reminder that benefits to national health and economic efficiency may argue for adopting carbon prices substantially above those necessary to slow climate change.

Summary

While reducing atmospheric carbon dioxide levels has global advantages, getting countries to sign on collectively to reduce the growth rate of CO2 emissions has been difficult. Yet if taxing CO2 delivered “national co-benefits,” it would be in all nations’ individual interests to proceed with carbon pricing now, without waiting for global agreements.

Aside from climate change, the combustion of fossil fuels has detrimental effects, such as reduced air quality (and contingent higher mortality rates and health care costs), vehicle accidents, traffic congestion...

About the Authors

Ian Parry is an economist at the International Monetary Fund, where Chandara Veung is a research analyst. Dirk Heine is an economist at the University of Bologna.

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