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Five Things to Know About Carbon Pricing
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Five Things to Know About Carbon Pricing

Carbon pricing shows serious promise as a tool in the fight against climate change

Ian Parry
IMF, 2021
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Climate change is underway and getting worse, posing an indisputable environmental threat. Reducing the use of coal, gasoline and fuel oil is crucial, but piecemeal solutions won’t lead to successful outcomes, writes policy expert Ian Parry in this informative essay. He argues that carbon pricing could be just the solution, if implemented properly and consistently, that would accommodate both developed and developing economies.

Summary

First, putting carbon pricing into effect is a relatively simple process, and second, it is advancing around the world.

Carbon pricing establishes incentives to invest in clean energy sources by making fossil fuels too expensive to use. It would consist of a tax on carbon content or on carbon dioxide emissions, and the process could expand on existing fuel tax regimes. Alternatively, heavy users of fossil fuels, like power plants, could buy and sell pollution allowances subject to price floors and caps on the allowances.

Carbon pricing systems are proliferating, although more are needed. Adopters include the European Union, China and Canada. In 2021, these programs ...

About the Author

Ian Parry serves as an expert in environmental fiscal policy at the IMF.

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