STRICTLY CONFIDENTIAL

GROUP OF TWENTY

REACHING NET ZERO EMISSIONS

Prepared by Staff of the

I N T E R N A T I O N A L M O N E T A R Y F U N D*
*Does not necessarily reflect the views of the IMF Executive Board

JUNE 2021
EXECUTIVE SUMMARY
Keeping global temperatures to safe levels requires governments to swiftly adopt
comprehensive climate policy packages. A growth-friendly strategy consists of four building blocks:
a green investment plan, carbon pricing, support to green R&D, and measures to ensure the social
fairness of the transition. The green investment push would pave the way for a phased-in rise in carbon
prices (by addressing network externalities and market failures), while also boosting demand and
employment and helping the recovery from the COVID-19 pandemic. Carbon pricing or regulations
are necessary to achieve a deep reduction in emissions, which green investments or R&D alone cannot
deliver.
Aligning infrastructure with net zero emissions requires additional public investments in the
range of 0.5 to 4.5 percent of GDP cumulatively over the next decade, with most estimates
clustered around 2 percent of GDP. Investment has to shift away from the extraction and
combustion of fossil fuels toward renewable energy, electricity networks and storage, electrification
of end-uses, and energy efficiency. While the bulk of investment will come from the private sector in
most countries, the public sector has a catalytic role to play through direct infrastructure investment
and also through other support measures, such as co-funding for projects with large upfront
investment costs, and risk-sharing through insurance and guarantees.
Carbon pricing is a cost-effective way of reducing emissions. Carbon pricing, which can take the
form of a carbon tax or an emission trading system, is the least-cost option to deliver deep emission
cuts. Moreover, it generates revenues that can be used to finance compensatory measures such as
transfers to affected households or green infrastructure spending. Delaying action on carbon pricing
by ten years would likely imply missing mid-century net zero emission targets by a large margin, since
the prices required at that point to reach those goals would appear unviable. That, in in turn would
unleash higher temperature increases than could be achieved with a swift introduction of carbon
pricing, with potential irreversible damage to the climate and the economy. Where carbon pricing is
not politically feasible, regulations can be used to limit emissions—but these would likely come with
higher economic costs. In hard-to-decarbonize sectors such as transportation, agriculture, and land
use, carbon pricing should be complemented with sector-specific policies.
The transition to a low-carbon economy needs to be just and create opportunities for displaced
workers. The shift in investment can create a geographically concentrated loss in employment, for
example in coal mining regions. Proven remedies include programs for retraining workers, support
for geographic mobility, the active promotion of new industries, and investments in the quality of life
in the region. Apart from funding such efforts, revenue from carbon pricing can be used to
compensate affected households for higher energy costs. In advanced economies, this can take the
form of reduced taxation or direct transfers to these households. In developing economies, providing
basic infrastructure in education, health, clean water access, etc. might be the most effective.
Immediate and coordinated climate action, including transfers of green technology and climate
finance for developing economies, is needed to prevent catastrophic climate change.
Successfully mitigating climate change will require the participation of all countries, including
developing economies where carbon emissions are expected to grow substantially. Joint action
through a coordinated green investment push would create beneficial demand spillovers and lift
global output and pave the way for higher carbon prices. In addition, a global carbon price floor
among the G20—differentiated according to level of development to reflect the principle of common
but differentiated responsibilities—would decisively curb emissions and limit carbon leakage among
the participants. Bringing every country on board, however, will require financial and technological
support for developing economies for which the transition costs are more difficult to bear, due to
fast-growing energy needs and less fiscal space to finance green investments.
____________________________________________________________________________________________________________________________
The note was authored by Florence Jaumotte and Gregor Schwerhoff under the general direction of Oya Celasun, with contributions
from Weifeng Liu, Warwick McKibbin and Augustus Panton for model simulations and Jaden Kim for research support. Daniela Rojas
provided administrative support. G-20 Notes are available on IMF.org.

2 INTERNATIONAL MONETARY FUND

REACHING NET ZERO EMISSIONS
Governments have a crucial role to play to bring about a transition from a high- to a low-carbon path,
including through investing in catalytic green infrastructure, providing R&D incentives and carbon price
signals, and ensuring a just transition. A front-loaded green infrastructure push would also help
economies recover from the COVID-19 crisis.1 This note outlines a pathway of achieving this policy mix
in the G20 over the next several years.

A. Risks from Climate Change

1. Climate change could destabilize economies and threaten global security as well as
human welfare. Unmitigated climate change is expected to increase global warming relative to pre-
industrial levels to around 4°C, raising the average temperature on earth’s surface to levels not seen
in millions of years.2 This would have significant detrimental effects on macroeconomic stability
through lower productivity in agriculture, fishing, and work in non-climatized locations; more frequent
disruption of activity and destruction of productive capital due to extreme weather events, natural
disasters and rising sea levels; diversion of resources toward adaptation and reconstruction; and
possibly increased morbidity and mortality due to more prevalent infectious diseases and natural
disasters. According to IPCC (2019), climate change “may lead to increased displacement, disrupted
food chains, threatened livelihoods (high confidence), and contribute to exacerbated stresses for
conflict (medium confidence)”.3 Given the strong interconnectedness of the global economy, no
country is likely to remain unscathed even if the worst warming impacts are initially concentrated in
hotter regions. Scientists have also warned about the risk of reaching climate tipping points—such as
the melting of glaciers and ice caps—which could not be reversed over human time scales and bring
catastrophic consequences for life on the planet.4
2. Ambitious climate action to reach net zero emissions is necessary to achieve the
temperature goals set out in the 2015 Paris Agreement. In the Paris Agreement, countries agreed
to “holding the increase in the global average temperature to well below 2°C above pre-industrial
levels” to avert catastrophic outcomes. Keeping temperature increases below 2°C, in turn, will require
bringing net greenhouse gas emissions to zero by mid-century.5 This means that carbon emissions
must be eliminated or that any remaining carbon emissions must be removed from the atmosphere
by natural sinks (for example, forests and oceans) or artificial means (for example, carbon capture and
storage).

1
IMF (2020a), Chapter 3.
2
IPCC (2013).
3
A recent study found that absent climate mitigation policies, mean annual temperatures could be above 29°C in 19 percent of
Earth’s land surface by 2070 compared with only 0.8 percent currently, affecting a third of the global population and possibly
leading to massive migration. Xu et al. (2020).
4
Wunderling et al. (2021).
5
Climate stabilization, at any temperature level, requires a reduction of emissions to net zero. Limiting global warming to 1.5°C is
considered ambitious climate policy. Aiming at stabilizing global temperature at 2°C, 3°C or higher would allow for more delay, but
also requires a reduction to net zero emissions. The reason is that the global average temperature depends on the stock of
emissions. Therefore, as long as the emission concentration increases, global temperature will also increase.

INTERNATIONAL MONETARY FUND 3

 Figure 1. Baseline Emissions and NDC Target 3. Reaching net zero emissions will
(GHG emissions in GtCO2e) require much more ambitious policy than
2.0 20
has been implemented so far. Almost all
Baseline emissions in 2030
1.8 Linear emission reduction in 2030 18
1.6
1.4
NDC target 16
14
countries have defined Nationally
1.2 12 Determined Contributions (NDCs) to
1.0 10
0.8 8 implement the 2015 Paris Agreement and are
0.6
0.4
6
4
expected to adopt more ambitious NDCs
0.2 2 over time, including in the 2021 United
0.0 0
Nations Climate Change Conference (COP26)
BRA
DEU

ITA

SAU
JPN

KOR

FRA
AUS

TUR
GBR

IDN

ZAF
ARG
CHN
CAN

RUS
IND
MEX

USA
G-20 advanced excl. USA G-20 emerging Top emitters meeting in Glasgow, UK. Current NDCs are
excl. CHN, IDN, and RUS (RHS)
insufficient to reduce global warming to 2°C
Sources: IMF Staff using the IMF’s Carbon Pricing Assessment Tool
Note: Linear emissions are calculated from baseline emissions in or below, being more compatible with 3°C
2021 to net zero emissions in 2050. NDC targets are the warming by 2100.6 A growing number of
unconditional target or, where available, the average of the
conditional and unconditional target. For EU countries, the EU
countries (58 to this day, covering 53 percent
commitment to reduce emissions by 55% is used. Saudi Arabia’s of global emissions) have since 2015
NDCs could not be converted to emission reduction targets.
specified their long-term commitment by
announcing “net zero emissions” objectives by mid-century. This includes the G20 members
Argentina, Brazil, Canada, China (2060), the EU, France, Germany, Japan, South Africa, Korea, UK, and
US. However, few G20 countries have put these targets into policy or law (as reflected in “baseline”
emission paths being higher than what would be consistent with NDC targets for most countries in
Figure 1). To implement the net zero emissions commitments, countries will need to ramp up action
significantly and quickly on carbon pricing and investment in clean technologies from current levels
(see below).

Figure 2. Government Debt and Green Recovery Spending by Country

Government debt Total and green recovery spending by country
(percent of GDP) (percent of 2020 GDP estimate)
150 20
Jan. 2020 WEO Oct. 2020 WEO 18 Green recovery spending Non-green recovery spending
130 16
G-19 advanced 14
110 12
10
90 8
6
70 4
G-19 emerging 2
50 0
CHN

IDN
AUS
EU

DEU

ARG

RUS
SAU
ITA

USA
FRA

MEX

ZAF

BRA
KOR

IND
UK

TUR
ESP

JPN

CAN

30
95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 G-20 advanced G-20 emerging

Sources: IMF, World Economic Outlook; and IMF staff Sources: IMF World Economic Outlook; Global Recovery
calculations. Observatory (2021); and IMF staff calculations.
Note: Includes G-19 plus ESP. ESP is a permanent invitee. Note: The data on the website used update weekly. These
numbers are from May 24, 2021. Funds that have been given a
designated purpose by the EU but have not yet been allocated
to a member country are counted under European Union (EU)
spending.

6
UNFCCC (2021).

4 INTERNATIONAL MONETARY FUND

B. The Opportunity to Reset Economies on a More Sustainable Path

4. The current recovery from the Covid-19 crisis presents a unique opportunity to reset
economies on a more sustainable path. Where fiscal space is available—bolstered in many
economies by historically low interest rates—governments are considering mobilizing large
investments in infrastructure to help economies recover. The type of investments made will influence
economies’ carbon trajectories for decades. At the same time, debt has climbed to multi-decade highs
in both advanced and emerging G20 economies (Figure 2), meaning that investment packages of the
magnitude currently planned cannot be repeated any time in the near future. It is therefore best to
use the existing fiscal space to meet multiple goals at the same time and in particular to make critical
progress toward a low-carbon economy. While this note focuses on investments toward the latter
goal, developing economies also face substantial investment needs in adaptation to climate change.
5. So far a moderate share of recovery packages was dedicated to green spending, but
some large economies are acting more boldly. In 2020, announced spending on recovery measures
(which are distinct from the immediate rescue packages) amounted to US$1.9tn. The low-carbon (or
“green”) share of the recovery spending increased during the year 2020 but reached only 18 percent
by the end of the year7 amidst other crucial needs to sustain livelihoods.8 Recovery packages are very
diverse in terms of their size and their greenness (Figure 2). The EU’s earmarking of 37 percent of the
total disbursement under the 2021/22 Recovery and Resilience Facility for climate-friendly
investments and the proposed American Jobs Plan with substantial support to green the economy—
if passed—are notable actions to set economies on more sustainable paths.9
6. Climate policy has important co-benefits through improved health and productivity.10
Climate policy discourages the burning of fossil fuels, thereby reducing local air pollution. The latter
caused 10 million deaths globally in 2012.11 In South Asia, 7 percent of pregnancy losses can be
attributed to local air pollution.12 In addition to averting these incalculable losses, reducing local air
pollution increases labor productivity and effective labor input.13 By encouraging the use of public
transportation over individual transportation, climate policy can also reduce congestion. 14 As a result,
a considerable amount of climate policy is in the immediate domestic economic interest of countries.

7
UNEP (2021).
8
The classification of recovery measures and the definition as “green” is based on the “subjective assessment” of Hepburn et al.
(2020).
9
The EU has also announced enhancements to the InvestEU program for sustainable infrastructure and a climate share of 25
percent of the EU budget.
10
M. Li et al. (2018).
11
Vohra et al. (2021).
12
Xue et al. (2021).
13
Graff Zivin and Neidell (2012).
14
Parry et al. (2014).

INTERNATIONAL MONETARY FUND 5

C. A Comprehensive Policy Package is Needed: Combining Carbon Pricing
with Green Infrastructure Investment

Box 1. A Comprehensive Mitigation Package to Reduce Emissions by 80 Percent

IMF (2020a) examines an illustrative comprehensive policy package scenario to reach close to net zero
emissions by mid-century in a growth- and distribution-friendly way. The purpose of this analysis is to illustrate
the role that a green fiscal stimulus can play in combination with carbon pricing for each country to reduce
their emissions substantially. The 2050 objective is operationalized as a reduction in gross emissions by 80
percent, assuming that the remaining emissions are absorbed by negative emissions technologies. 1 In this
scenario, each country/region is assumed to reduce independently its own emissions by 80 percent by 2050,
except the group of selected oil-exporting and other economies which keep emissions at current levels (going
beyond that goal would entail a further loss in output for fossil-fuel exporting economies already facing a
substantial loss in income due to the fall in global oil and gas demand). The proposed policy package includes:
Green supply policies. These consist of a subsidy on renewables production and a 10-year green public
investment program (starting at 1 percent of GDP and linearly declining to zero over 10 years; after that,
additional public investment maintains the green capital stock created). Public investment is assumed to take
place in the renewable and other low-carbon energy sectors, transport infrastructure, and services—the latter
to capture investments in the energy efficiency of buildings.
Carbon pricing. Carbon prices are calibrated to achieve the 80 percent reduction in emissions by 2050 in
each country/region, after accounting for emission reductions from the green supply policies. A high annual
growth rate of carbon prices (7 percent) is assumed to ensure low initial levels of the carbon price given the
post-crisis context. Carbon prices start at between US$6 and US$20 a ton of CO2 (depending on the country),
reach between US$10 and US$40 a ton of CO2 in 2030, and are between US$40 and US$150 a ton of CO2 in
2050.2
Compensatory transfers. Households receive compensation equal to 25 percent of carbon tax revenues,
which should protect the purchasing power of low-income households through targeted cash transfers.
Supportive macroeconomic policies. The policy package outlined above implies a fiscal easing that requires
debt financing for the first decade and occurs amid low-for-long interest rates. The debt increase to finance
green spending is only partly offset by the additional carbon revenues.
1/ IPPC (2018).
2/ The range of estimates of carbon prices needed to reach a certain level of emission reduction is large (see, for instance, (IPCC
(2014), Figure 6.21.a; High-Level Commission on Carbon Prices (2017)). IMF (2019a), for instance, recommends a carbon price of
$75 by 2030. The relatively low levels of carbon prices in simulations in IMF (2020a) reflect (1) the fact that carbon prices are
combined with other instruments (green infrastructure investment and green subsidies) that achieve part of the emission
reduction; (2) the high assumed growth rate of carbon prices, which back-loads their increases (which forward looking agents in
the model perfectly foresee); and (3) the fact that the G-Cubed model embeds more substitutability between high- and low-carbon
energy (based on econometric evidence) than engineering-based models, which means that a given amount of emission reduction
can be achieved with lower carbon prices than otherwise.

7. A growth- and employment-friendly transition toward net zero emissions would require
a multi-pronged strategy. A green infrastructure push would have the double benefit of supporting
output and employment in the recovery from the Covid-19 crisis and putting in place the conditions
to support the transition. At the same time, a green investment push alone is unlikely to reduce
emissions to net zero. Carbon pricing is critical to mitigation because it incentivizes both energy
efficiency gains and a reallocation of resources from high- to low-carbon activities. At the same time,

6 INTERNATIONAL MONETARY FUND

even a combination of investment and carbon pricing would need to be complemented by an active
support of the development and industrial-scale deployment of new low-carbon technologies to
achieve a full transition to net zero emissions, since in some sectors, no viable low-carbon technology
exists at the moment. Last but not least, a fair transition requires compensating affected households
for the impacts of higher carbon prices and supporting the transitions of workers from high- to low-
carbon sectors; revenues from carbon pricing could be used to this end (see Section G). Box 1 provides
an illustrative example of policy package15 and its elements are discussed below. In addition to this
package consisting of fiscal instruments, central banks and financial supervisors have an important
role to play by ensuring that the financial sector takes climate-related risks into account16 and
increasing transparency on these risks.17

Figure 3. A Comprehensive Mitigation Package to Net Zero Emissions

CO2 emissions Real GDP
(gigatons of CO2) (percent deviation from baseline)

Sources: IMF (2020a), Chapter 3; and IMF staff calculations.

Note: The “Aggregate policy package” is a combination of the “Carbon tax”, “Green policy”, and “Other” layers. The “Other” layer
includes the compensatory transfers to households and the avoided damages from climate change resulting from the mitigation
package. The carbon tax layer assumes that the tax is used for debt repayment. As a result, GDP losses are higher than they would
be if the revenue were used for investments or to reduce other taxes. Co-benefits in the form of improved health (due to lower
local pollution) and reduced congestion are additional benefits from carbon taxes and other mitigation policies. Their valuation is
based on Parry, Veung, and Heine (2015).

Green Infrastructure Investments

8. Green public infrastructure can take various forms. In the transportation sector, the
government can accelerate a transition to low-carbon options by providing the supporting
infrastructure like charging stations for electric vehicles, supporting drivers’ access to low-carbon
transportation. Similarly, in the energy sector, more interconnected and reliable electricity networks
would help increase the amount of (intermittent) renewable energy that can be integrated into the
grid, catalyzing private investment in wind and solar electricity generation. Providing incentives for
energy-saving building retrofits can also help overcome the misaligned incentives, between renters
and landlords for example, in that sector.18 Deploying green infrastructure will also facilitate more

15
IMF (2020a).
16
Bolton et al. (2020).
17
NGFS (2021).
18
Bird and Hernández (2012).

INTERNATIONAL MONETARY FUND 7

ambitious climate policy later by facilitating affordable low-carbon alternatives and forming a
constituency in favor of climate policy.19
9. Green investments can have a significant stimulating effect on GDP and employment.
By adding to demand and the productivity of the low-carbon private sectors, the green supply policies
described in Box 1 could raise annual global output by about 2 percent compared to the baseline on
average over 2021-30 (Figure 3), and total employment by nearly 1 percent on net —equivalent to 30
million additional people being employed over that period. The investment push reduces emissions
by 22 percent in 2030 compared to the baseline. This is equivalent to a 4 percent reduction compared
to 2021 emissions (in the baseline, emissions increase by 23 percent between 2021 and 2030).
10. Estimated multipliers of green investments are high. While the scenario analysis
mentioned above embeds multipliers estimated for general infrastructure investment,20 emerging
evidence suggests that multipliers of green investment could be at least as large as for other energy
investments. The median estimate of cumulated multipliers for sustainable energy investments
(investments that don’t contribute to emissions on net) is larger than one for the first five years and
appears to be larger than those of energy investments that are not environmentally friendly.21 In
addition, job multipliers—defined as the number of jobs created by a certain amount of energy
generation—are higher for renewable energy generation than for fossil fuels.22 Taken together, these
findings suggest that the output and employment effects simulated and described above could be a
lower bound for actual impacts.
11. The economic and social outcomes of public investment depend crucially on the
efficiency of spending, calling for strong public investment management practices. On average,
over one-third of public investment value is lost due to inefficiencies, and better public investment
management—that is strong public sector institutions that effectively plan, allocate, and implement
public investment—can reduce losses by more than half.23 According to the results of 60 conducted
Public Investment Management Assessment (PIMA)—the IMF’s tool to analyze the strength of public
investment management practices—countries need to improve their project appraisal and selection
capacities as well as maintenance funding which see the weakest scores in the public investment cycle.
Integrating climate change perspectives in public investment management would enable countries to
better design and implement climate relevant infrastructure. In this regard, the IMF is also developing
the PIMA Climate Change Module (PIMA CC) with a particular focus on the resilience and sustainability
aspects—PIMA CC integrates climate change issues into PIMA framework and helps strengthen
governments’ capacity to address risks related to climate and natural disasters in public investment.

Cost and Benefits of Carbon Pricing

12. Carbon pricing has several advantages as a tool for achieving rapid and substantial
emissions reductions. Carbon pricing provides across-the-board incentives for shifting to cleaner

19
Pahle et al. (2018).
20
They are based on the results from Calderón, Moral-Benito, and Servén (2015).
21
Batini et al. (2021) estimate fiscal multipliers for investments in renewables to be about twice as large as those for investments to
extract and use fossil fuels.
22
Wei, Patadia, and Kammen (2010).
23
IMF (2021).

8 INTERNATIONAL MONETARY FUND

fuels and, by raising the cost of high-carbon energy, it also incentivizes higher energy efficiency. By
contrast, green supply policies if implemented alone tend to lower the cost of energy and hence do
not incentivize energy efficiency as much, making it harder to reach net-zero emissions targets.
Moreover, a strong commitment to carbon pricing would not only boost the adoption of available
clean technologies but also encourage the development of new ones.24 The carbon price paths
described in Box 1 can deliver an 80 percent reduction of global emissions by 2050 if combined with
a green investment push (Figure 3). While carbon prices hurt economic activity by increasing the cost
of polluting energy, when used in combination with a green investment stimulus, the net global output
effects are simulated to be positive for the first 15 years (at about 0.7 percent relative to baseline) and
moderately negative thereafter; when health and congestion related co-benefits are included, the
effects are positive or neutral for global output throughout.
13. The costs from carbon pricing can be partially offset by benefits of reducing carbon
emissions, which are not fully captured by the simulation analysis. These additional benefits
include the productive recycling of revenues (instead of debt reduction as in the simulation), lessened
informality, impacts on productivity from lower local air pollution, and induced technical change.
Using carbon tax revenues to fund productive investment or lower distortionary taxes can partly offset
the loss in GDP resulting from higher energy costs. It is preferable to tax things that are harmful to
the public health and the economy (like CO2 emissions) and instead reduce taxation on things that
are desirable, like labor input.25 Such a strategy increases tax efficiency and produces a double
dividend of less environmental damage and lower labor cost. In addition, as it is more difficult to avoid
carbon taxes than most other taxes, a switch from labor to carbon taxation also motivates some firms
to move from the informal to the formal sector, thus increasing productivity and formal employment. 26
Through lowering local air production, carbon pricing and other mitigation policies improve health
outcomes and hence labor productivity.27 Finally, carbon pricing will induce technical change in low-
carbon technologies, further supporting the expansion of economic activity in low-carbon sectors.
The empirical literature—albeit largely focused on advanced economies—currently suggests very
small or, in some cases, positive impacts from carbon taxes on GDP and other estimates of economic
activity.28
14. Where carbon pricing would not be politically feasible, regulations that limit emissions
are an alternative policy tool. Regulation can be an entry point to climate policy. In many countries,
carbon pricing, which ensures that carbon emitters and consumers internalize the cost of the climate
externality, faces political economy obstacles. In these cases, regulation—which is an indirect form of
putting a cost on carbon emissions—can help start the transition. This can improve the chances of

24
IMF (2019b); High-Level Commission on Carbon Prices (2017).
25
IMF and OECD (2021).
26
Bento, Jacobsen, and Liu (2018).
27
Graff Zivin and Neidell (2012).
28
Pigato et al. (2020), Chapter 1. For example, Metcalf and Stock (2020) find no negative impact from existing carbon prices in
Europe. (Metcalf 2019) and (Bernard, Kichian, and Islam 2018) similarly find no impact of carbon tax on GDP in British Columbia;
(Azevedo, Wolff, and Yamazaki 2018) find there was no negative impact on jobs in British Columbia; and (Yamazaki 2017) finds a net
increase in jobs from the carbon tax in British Columbia. (Cali et al. 2019) find an increase in energy taxes in Mexico and Indonesia
increased firm-level productivity, likely due to inducing firms to invest in energy efficiency technologies at the frontier. Lastly,
(Schoder 2021) finds a negative multiplier from environmental taxes of 1 to 1.8 at the peak, in many cases not significantly different
from zero, and overall less than those of income taxes.

INTERNATIONAL MONETARY FUND 9

introducing carbon pricing later and be an important step in a policy sequencing approach.29 However,
in contrast to carbon pricing, which provides across-the-board incentives to agents to identify the
least-cost way of reducing their emissions, regulations require the government to identify where and
by how much emissions should be reduced, requiring complex and multiple rules for different sectors,
and don’t generate an income to support a just transition or finance the clean transition. Seeking to
lower emissions through regulations would therefore be likely to be more costly for economic activity
(though in the long run any successful policy for cutting emissions is likely to be better for global
income than not acting at all).

Figure 4. Prices in Implemented Carbon 15. The number of jurisdictions

Pricing Initiatives applying carbon pricing and the amount of
(carbon price in 2020 in US$/tCO2e; percent) emissions covered have increased every year.
40 Price rate (Carbon tax) 100
Price rate (ETS) Both carbon taxes and emission trading have
Share of jurisdiction's GHG emissions covered (RHS, percent)
32 80 been used successfully: Sweden’s carbon tax has
24 60
been introduced in 1991 and has reached a level
of US$120/tCO2. California’s emission trading
16 40
system was introduced in 2012 and now covers
8 20 nearly 90 percent of its greenhouse gases (at a
price of about US$17). In 2021, the total number
0 0
EU UK CAN KOR ESP AUS USA ZAF FRA CHN ARG JPN MEX of carbon pricing schemes globally has reached
1/ 2/ 3/
61, and 23.2 percent of global emissions are
Sources: World Bank (Carbon Pricing Dashboard); and IMF staff
calculations. covered by a carbon price (World Bank 2020). At
1/ The bar contains three non-EU countries (Norway, Iceland, the same time only three countries have a
and Liechtenstein) due to data limitation.
2/ Simple average of carbon prices subnational ETS: CA, MA, and
carbon price exceeding US$75—the price
Regional Greenhouse Gas Initiative (RGGI). identified as compatible with the 2°C target30:
3/ Simple average of carbon prices subnational ETS: Beijing,
Liechtenstein, Sweden, and Switzerland. Twelve
Chongqing, Fuijan, Guangdong, Hubei, Shanghai, and Tianjin.
G20 countries not shown here do not have a carbon price. G20 countries have a form of carbon pricing and
the EU ETS covers all EU countries (Figure 4).
The Role of Technology and Innovation

16. Further technology developments are key to enable and facilitate the transition to a low
carbon economy. The upside potential of supporting innovation in hydrogen technologies, batteries,
and carbon, capture, utilization, and storage (CCUS) is very large. These technologies are available
already and further innovations could make them competitive. Green hydrogen is an energy carrier
that can be synthesized through electrolysis with renewable energy and can be used in industrial
applications which are difficult to decarbonize otherwise (for example steel production) and heavy
transport (for example in aircraft). Batteries in electric cars not only help decarbonize the transport
sector, but—by expanding storage capacity—they can also help integrate variable renewables into

29
Pahle et al. (2018).
30
IMF (2019a).

10 INTERNATIONAL MONETARY FUND

electricity production. CCUS technology could be used to capture the emissions in the production
from “blue hydrogen”31 or to withdraw carbon from the atmosphere.
17. Early public support for the development and industrial-scale deployment of
breakthrough innovations is key to make the transition to net zero possible. While a lot of
emission reductions can be achieved with existing technology32, additional innovation is likely needed
for reaching net zero emissions globally. Supporting risky R&D with long lags to returns addresses
the market failure (leading to suboptimal innovation) arising from the positive spillovers of technology
development that innovators do not internalize. Public procurement can be used to increase the size
of the market for clean technologies, thus incentivizing innovation.33 Blue hydrogen, for example, uses
CCUS, so that government demand for blue hydrogen supports the development of CCUS. In addition,
supporting technology transfers from advanced to developing economies would accelerate
decarbonization globally. Options to enhance technology transfers are de-risking mechanisms like
loan guarantees, public equity co-investments, and political risk insurance for private investments in
low carbon technologies in developing economies.34

D. Need for Immediate and Universal Action

18. Delaying carbon pricing makes it extremely difficult to reach net zero emissions. In an
illustrative “delayed action” scenario, the green stimulus investment is implemented in 2021, but the
Figure 5. Delayed Action and Partial start of carbon pricing is delayed to 2030. It is
Participation Scenario assumed that the carbon prices applied in the
CO2 emissions “aggregate policy package” of Box 135 are
(gigatons of CO2)
simply shifted back by nine years. This delay
implies that emissions are merely stabilized at
today’s level and are far from reaching net
zero by mid-century (Figure 5). Moreover, the
trajectory of economic activity is smoother
when the introduction of carbon prices is
anticipated (see blue line in Figure 5) than
when it is unanticipated (see green line in
Figure 5). An alternative would be to assume
that the carbon prices increase more sharply
Source: IMF staff estimates
Note: In the “delayed action” scenario all countries implement a after their delayed introduction. This might
green stimulus package in 2021, but the introduction of carbon still make it possible to reach net zero
prices is shifted to 2030. “Anticipated” refers to the scenario, where
economic actors anticipate the introduction of carbon prices in
emissions by mid-century, but the fast rate of
2030 and adjust decisions accordingly. In the partial participation increase in carbon prices can be expected to
scenario, China, EU, Japan, and USA implement both a green fiscal
lead to large economic costs. While an
stimulus and a carbon price, while the other countries do neither.
economy can adjust smoothly to a moderate

31
van Renssen (2020). “Blue” hydrogen is produced from natural gas, but the generated CO2 is stored underground through CCS.
Both green and blue hydrogen are zero-carbon fuels (Englert et al. (2021a)).
32
Pigato et al. (2020).
33
IEA (2020b), Section 2.7.
34
Pigato et al. (2020).
35
IMF (2020a).

INTERNATIONAL MONETARY FUND 11

increase in carbon prices36, the capital replacement rate might be too slow to react without large
losses to drastic increases.37
19. Global participation is needed to reach net zero emissions. Some of today’s major carbon
emitters (China, EU, Japan, Korea, and USA) have made pledges to reach net zero emissions by mid-
century. This will reduce a large share of emissions. In addition, the transition in these countries will
provide technology and policy solutions that will make it easier and more affordable for other
countries to follow.38 However, stabilizing the global climate will require global emissions to go to net
zero. In the absence of climate policy, today’s smaller emitters will become major emitters as their
populations grow and per capita incomes increase. It is thus important that countries other than
today’s top several emitters follow quickly. An illustrative “Partial participation” scenario assumes that
China, the EU, Japan and the US form a coalition to reduce their emissions to net zero, but none of
the other countries act.39 The reduction in emissions by the coalition countries does avoid the increase
in global emissions seen in the baseline. But the absolute level of emissions declines only moderately
compared to today’s level, reflecting the continued increase of emissions in the countries that do not
participate (Figure 5). In this case, global emissions will be far from reaching net zero, underscoring
the need to ensure broader participation in mitigation strategies.
20. Coordinated green stimulus investments would generate positive demand spillovers,
making the transition easier for all. Investing together in a green economy would spur the
development and deployment of new carbon-saving technologies, by creating a larger market for
them, enabling more learning-by-doing, and generating mutually beneficial knowledge spillovers
(IMF 2020b). A coordinated green investment push would also boost global activity beyond what each
country could do individually, especially in a context of accommodative monetary policy.
21. An agreement on a minimum carbon price among G20 countries would help scale up
action while limiting negative spillovers. A common minimum carbon price among the G-20
economies would help protect firms in energy-intensive and trade-exposed sectors from losing
competitiveness and prevent production from shifting to countries with lower prices within the
group.40 It could also avoid the use of potentially contentious and complex border-carbon
adjustments by countries that plan to move ahead with carbon pricing. A minimum price system could
embed a lower carbon price floor for countries with lower per capita incomes in recognition of the
principle of common but differentiated responsibilities between countries, as well as the higher carbon
intensity of their economies. A higher carbon intensity makes emissions more responsive to changes
in carbon prices, requiring a smaller increase to achieve a given reduction in emissions.41

22. Financial support will be necessary for developing economies, which are expected to
incur greater costs along the transition yet have little means to pay for it. The comprehensive
policy package boosts output throughout in China, the EU, Japan and the US until 2050, especially
when co-benefits are accounted for (Figure 6, left panel).42 The net output effect is negative through

36
Metcalf and Stock (2020).
37
Luderer et al. (2016).
38
Schwerhoff (2016).
39
Korea was not modelled separately in G-cubed and hence could not be included in the illustrative coalition.
40
IMF (2019a); Parry, Black, and Roaf forthcoming.
41
IMF (2019a).
42
IMF (2020a).

12 INTERNATIONAL MONETARY FUND

2050 for oil producers; while it is positive in the near and mid- term, and negative in the long term for
non-oil producing developing economies apart from China. While the size of the net effect depends
on policy design (the use of carbon pricing revenue, in particular) and how large the co-benefits are,
the relative impacts are clear: the transition to a low-carbon economy is likely to be more costly for
developing countries that have faster growing energy needs than advanced economies. In addition,
developing economies typically have more constrained fiscal space, limiting the option of using a
green fiscal stimulus to make the transition growth friendly. If developing countries were to only
implement carbon pricing and not the green fiscal stimulus, their output would be lower than in the
aggregate policy package (Figure 6, right panel). Climate finance—financing emission-reducing
investments in developing economies—would allow for a more even burden sharing and help the
global economy reach net zero emissions. Many developing economies are prepared to ramp up their
NDCs conditional on receiving climate finance; and given that many of the world’s lowest-cost
mitigation opportunities exist in emerging and developing economies, it is in the global interest to
make sure that these are pursued. Climate finance is also justified on the grounds that developing
economies are likely to face much higher investment needs for adaptation to climate change, given
that they are typically in regions of the world that are more exposed to damages from climate
change.43
23. While oil exporters can expect a drop in demand for their main export commodity, there
are also potential upsides from climate mitigation. Fossil fuel exporters are bound to experience
the largest economic losses from the transition of the global economy to a low-carbon path. Even
without a domestic carbon tax, the fall in global demand for fossil fuels would significantly lower these
economies’ fiscal revenues and economic activity. However, potential upsides are higher prices from
Figure 6. Regional Effects and Scenario Comparison
Real GDP and Co-benefits, three-year average Real GDP
(percent deviation from baseline) (percent deviation from baseline)

Source: IMF staff estimates

Note: “OEC” includes Australia, Canada, Iceland, Liechtenstein, and New Zealand. “OPC” includes Ecuador, Nigeria, Angola, Congo,
Iran, Venezuela, Algeria, Libya, Bahrain, Iraq, Israel, Jordan, Kuwait, Lebanon, Palestinian Territory, Oman, Qatar, Saudi Arabia, Syrian
Arab Republic, United Arab Emirates, Yemen. ROW includes the rest of the world. The “NZE coalition” includes China, EU, Japan,
and USA. “Other countries” in the right-hand side panel include India, ROW, and OEC; however, OEC countries have a small weight
and excluding them does not alter the results. In the “partial participation” scenario, the NZE coalition countries implement both
green investments and carbon pricing in 2021, while the other countries do neither. In the “fiscal space constraint” scenario, the
NZE coalition countries implement both green investments and carbon pricing in 2021, while the other countries do only carbon
pricing. In the “aggregate policy package”, all countries implement both green investments and carbon pricing in 2021.

43
World Bank (2013). Hallegatte, Rentschler, and Rozenberg (2020) highlight that much of adaptation can be done in the form of
enabling the population to become more resilient, through fighting poverty and building social safety nets. Infrastructure is only
one (though important) aspect.

INTERNATIONAL MONETARY FUND 13

remaining oil sales (including through imposing an export tax on oil sales themselves as a replacement
for carbon pricing abroad), lower climate damages and the potential to produce zero-carbon fuels
with existing infrastructure for transporting, storing and exporting fossil fuels. Further options for oil
exporters include the re-use of carbon emissions and their recycling.

E. Zooming into Green Infrastructure Investment Needs

24. A shift from fossil fuels toward low-carbon energy will require large investments to
replace installed carbon-intensive capital with low-carbon capital. There is thus a need for a
strong increase in total investments in the next 20 years and a change in the composition of
investment. The total amount of investment should increase, because in some cases low-carbon
technology requires more investment (Table 1). One reason for this is that a new network
infrastructure needs to be constructed, like electricity grids or electric vehicle charging infrastructure.
Also, in many sectors, reducing emissions means building infrastructure that has higher initial cost
and lower operating cost due to a reduction in fuel consumption. An example for this is renewable
energy, which costs more initially, but does not require fuel. Investments in energy efficiency have a
similar structure. After the initial cost for setting up a low-carbon system, less investments are needed.
As a result, the investment need is hump shaped, with an increase in the next 20 year and a decrease
to recent historical levels after that (Figure 7).

Table 1: Additional Cumulative Investment Needs for the Decade 2021 to 2030
Public Total
Period investment need investment need
Source Sectors considered (percent GDP) (percent GDP) Climate target
OECD (2017) All 2016-2030 1. 9 6.3 2.0 °C
McCollum et al. (2018) Energy 2016-2050 2.1 7.1 1.5 °C
Range of models 0.4 to 4.4 1.3 to 14.6
IEA (2021b) Energy+ 2021-2030 2.7 9.9 NZE by 2050
EIB (2021)-EU only All 2021-2030 2. 1 4.7 55% reduction by
2030

Source: OECD (2017), McCollum et al. (2018), IEA (2021b), EIB (2021) and IMF staff calculations.

Note: The investment need is the difference between the investment required for the climate change scenario less
investment in the baseline. The share of public investments in total investments is based on the historical average
split. The estimate of average GDP for the denominator is taken from the G-Cubed baseline scenario (IMF (2020a)).
Percent of GDP for IEA (2021b) are calculated with each year’s GDP separately. For the other sources average
estimated GDP for 2021 to 2030 is used. (McCollum et al. 2018) compares six Integrated Assessment Models for
which the average and, below, the range are reported. EIB (2021) refers to investment needs in the EU; all other
publications refer to global investment needs.

14 INTERNATIONAL MONETARY FUND

Figure 7. Public Sector Investment in Energy-Related Sectors
(percent of GDP; annual average per decade)

World, public sector investment World, total investment

Public investment in selected advanced fossil fuel producers Public investment in selected advanced non fossil fuel
1/ producers 2/

Public investment in selected emerging fossil fuel producers Public investment in selected emerging non fossil fuel
3/ producers 4/

Sources: International Energy Agency; and IMF staff calculations.

Note: First three bars represent the annual average over the decade except for 2020 (the average of 2015-2020); i.e. 2030: the
annual average of 2021-2020. Last two bars show the difference between two decadal average, i.e. 2030 NZE – 2020 represents the
annual average of 2021-2030 in NZE scenario – the annual average of 2015-2020 historical. NZE = Net Zero Emission scenario.
1/ USA and CAN,
2/ EU, GBR, JPN, KOR, AUS, and NZL,
3/ RUS and middle east countries,
4/ BRA, CHN, IND, IDN, MEX, and ZAF

INTERNATIONAL MONETARY FUND 15

Size and Composition of Investment Needs

25. The net cumulative increase in public investment needed to support the low-carbon
transition over the next decade is estimated to be between 0.5 and 4.5 percent of average GDP,
with most estimates clustered around 2 percent.44 Table 1 shows the additional investment need
estimates from various sources and relates them to the climate target for which they were designed;
the investment needs are cumulated over a decade and expressed as a fraction of one year’s GDP.
The additional investment is calculated as the difference between investment needs in a climate
change mitigation scenario and investment needs in a baseline where no additional mitigation policy
is implemented. Future energy demand is calculated based on projected GDP growth and specialized
models of the energy sector. The additional public investment need is based on the historical share
of public investments, and likely provides a lower bound, given the radical shift in energy systems that
is required and the need to support substantial private investment in low-carbon sectors. 45 Given the
differences in sectors covered, period considered, and emission reduction targets, the estimates from
various sources are not immediately comparable, but they give a range of the investment effort
required. Figure 7 shows the public sector investment needs in percent of GDP as well as the
increments by decade, according to newly released IEA estimates.46

Figure 8. Cumulative Public Investment, 26. Compared to baseline investments,

2021-2030 most regions need to increase investments.
(percent of GDP, difference between NZE and STEPS) All regions of the world need to decrease fossil
fuel investments and increase clean investments,
according to new IEA estimates of public
investment needs to reach net zero emissions by
2050 (Figure 8). This is consistent with additional
investments in existing oil and gas fields but no
further exploration and development of new
fields (IEA 2021b). Globally, cumulative public
investments for 2021 to 2030 in the baseline
(STEPS scenario) are at 8.1 percent of current
Sources: International Energy Agency; and IMF staff calculations.
Note: The Stated Policies Scenario (STEPS) is the baseline GDP. Reaching net zero emissions by 2050 will
scenario, the net zero emission (NZE) scenario is the climate require these investments to rise to 10.8 percent
policy scenario. For country groups, see Figure 7. Investments
refer to energy related sectors. of current GDP. However, there are important
regional differences. Fossil fuel investments are
small in many regions, but clean investments need to increase strongly, implying strong net increases.
In the emerging market fossil fuel producers (Russia and the Middle East), the level of investments is

44
The policy mix assumed crucially influences estimates of overall investment needs (public plus private). For instance, greater
reliance on carbon pricing incentivizes energy efficiency, which tends to reduce total energy demand, and the accumulation of
capital. Another driver of differences across models are the assumptions relating to the transformation of the energy system.
Switching from fossil fuels to intermittent, renewable power sources requires a more interconnected and flexible electricity grid. The
cost of this extension is different across models.
45
Investments by state owned enterprises are in some data sources also aggregated with investments of the private sector.
46
IEA (2021b).

16 INTERNATIONAL MONETARY FUND

almost at the NZE compatible level, but a considerable shift from fossil fuels to clean investments is
required.

27. About 63 percent of the public investment needed in 2021 to 2030 on a path toward net
zero emissions are in electricity distribution networks and generation from renewables. The IEA
estimates provide a sectoral decomposition for the world and selected country groups (Figure 7).
Renewable energy and electricity networks and storage are the most important categories, with
estimated increases of about US$2 trillion and US$ 2.2 trillion, respectively in the decade 2021 to 2030
compared to the previous decade. In addition, investments into end-use are important. This includes
end-use renewables (renewables directly used in buildings, transport, and industry, rather than
connected to a grid), energy efficiency (mostly building retrofits) and other end-use investments (this
includes mainly charging stations for electric vehicles).

28. Investing into lifetime extension for nuclear power plants can make an important
contribution to the energy transition. Nuclear power stations can be adjusted to respond to
seasonal fluctuations in energy demand to a certain extent. They can thus help manage output from
renewables. However, nuclear power stations are on average 35 years old in the EU and 39 years old
in the US. To extend the lifetime of nuclear power plants, key components need to be refurbished and
that requires significant investments.47 However, the desirability of expanding nuclear energy is
controversial48 so the extent of use of nuclear energy can be expected to vary depending on country
preferences.

29. Hydropower capacity is expanding at a moderate pace, but environmental costs impede
a large scale-up. Hydropower generation capacity has grown steadily in the past ten years, but at a
slowing rate.49 Actual capacity additions in
Figure 9. Public/Private Investment Split, hydropower have been far smaller than in solar
2021-2030
and wind power. The reason is that in many
(percent)
cases the socioeconomic and environmental
damages of large dams are large.50

30. Public investment needs for

reaching net zero emissions differ across
countries and sectors, in part reflecting
different ownership structures. Private
investment needs are estimated at about twice
the level of public investment on average
Sources: International Energy Agency; and IMF staff calculations. globally. The share of public investment in the
Note: Selected advanced (emerging) group contain USA, CAN, energy sector is sizable in emerging market
EU, GBR, JPN, KOR, AUS, and NZL (RUS, BRA, CHN, IND, IDN,
MEX, ZAF, and middle east countries).
economies but generally small—except in
electricity distribution networks—in advanced

47
IEA (2019).
48
Sovacool et al. (2020).
49
IRENA (2021).
50
Moran et al. (2018).

INTERNATIONAL MONETARY FUND 17

economies (Figure 9). In emerging market economies, public investment needs have to do with the
necessity of shifting from fossil fuel-based electricity generation to clean power in the current decade,
and an attendant upgrade to electricity networks and storage (Figure 7). In advanced economies,
where consumers are expected to shift toward electric vehicles earlier, public investment needs are
mostly focused on electricity networks and storage and “other end-use”, which mostly consists of
electric vehicle infrastructure.

Figure 10. Trends in the Use and Cost of Solar and Wind Energy
Global average price for solar photovoltaic and onshore Weighted average share of wind and solar energy in
wind electricity generation
(2019 US$/kWh) (percent)
0.4 16 G-20 China United States EU India
Fossil fuel cost range
0.35 14
Solar photovoltaic
0.3 Onshore wind 12

0.25 10

0.2 8

0.15 6

0.1 4

0.05 2

0
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Average cost of solar photovoltaic and onshore wind Share of wind and solar in electricity generation 1/
(2019 US$/kWh) (percent)
0.2 30
Fossil fuel cost range Solar PV Onshore wind
0.18
25
0.16
0.14 20
0.12
15
0.1
0.08 10
0.06
0.04 5

0.02
0
0
DEU

FRA
UK

AUS
JPN

CHN

IDN
CAN

IND
ESP

MEX
ITA

BRA

SAU
USA

KOR
TUR

ARG
ZAF

RUS
AUS CAN FRA DEU ITA JPN KOR ESP GBR USA BRA CHN IND MEX TUR
G-20 advanced G-20 emerging
G-20 advanced G-20 emerging
Sources: International Renewable Energy Agency; International Energy Agency; and IMF staff calculations.
1/ 2019 is latest for all countries except for SAU for which 2018 is used.
31. Climate finance is needed to help developing economies finance investments required
for the transition to low-emissions resilient economies. Advanced economies pledged to mobilize
US$100 billion a year from 2020 for mitigation and adaptation in developing economies from private
and public sources at the 2009 Copenhagen Summit. The Climate Policy Initiative estimates such flows
at US$70-80 billion for 2017–18 from bilateral, multilateral, and privately leveraged sources—even
though some public finance may reflect relabeling of existing funds, and systematic data on private
flows is lacking. The UN’s Green Climate Fund and the Global Environmental Facility were established
to catalyze investment. Carefully costed, fiscally sustainable investment plans are needed to attract
donor finance. Innovative instruments such as debt-for-climate swaps could, under certain
circumstances, help attract financing, especially for adaptation.

18 INTERNATIONAL MONETARY FUND

Cost and Feasibility of Renewable Energy Investments

32. Decarbonization of the electricity sector—which generates 32 percent of carbon

emissions globally—is a low-hanging fruit because alternative technologies have become
competitive with fossil fuel technologies. The cost of adding new wind and solar energy capacity
is below the upper end of the cost range for new fossil fuel capacity in all G20 countries, offering
attractive investment opportunities (Figure 10). The cost comparison is done for the levelized cost of
energy (LCOE) which is a measure of the average net present cost of electricity generation for a
generating plant over its lifetime. In fact, in most G-20 countries, the cost is at the lower end of the
fossil fuel cost range. For instance, the cost for onshore wind is below the cost range for new fossil
fuel capacity in Brazil, China, India, and the United States, and solar is below the range in India. Given
the steady downward trend in the price of these technologies, more countries can be expected to see
the cost of new renewable energy capacity falling below any possible new fossil fuel power capacity
additions in the near future.
33. So far, the share of renewable energy has increased rapidly in the G20. Integrating
renewable energy into the electricity system is a challenge, but so far, several European countries have
pushed the limit continuously. The share of wind and solar energy in electricity generation has recently
surged upwards in the UK, Spain, and Germany, exceeding 20 percent (Figure 10). Other G20 countries
can benefit from the technology development and experience of these early movers. While conditions
for renewable energy vary between countries and the pioneers are grappling with grid integration
challenges (once again pointing to investment needs); no upper bound has been reached yet. Feed-
in tariffs have proven very successful in increasing the share of renewable energy in many countries
around the world.51 Now that the technology has developed substantially, carbon pricing is an efficient
option to increase the share of renewables in electricity generation without imposing large costs on
end-users.
34. Technological advancements continue to improve the prospects for integrating variable
renewable energy (VRE) into the electricity grid and even 100 percent renewable energy might
be possible by 2050. The most prominent options for addressing variability, called “intermittency” in
the technical literature, in the electricity grid are i) the adjustment of conventional power plants
(hydropower and gas in particular) to more flexibility (to complement the intermittent supply of wind
and solar electricity generation), ii) the expansion of transmission grids to pool different renewable
energy sources, iii) making electricity demand respond to supply and iv) expanding storage capacity.52
Connecting the electricity system with other sectors (sector coupling) provides further flexibility. 53 An
important example of sector coupling is the use of excess electricity from renewable energy to
produce zero-carbon fuels like green hydrogen. Exploiting such options fully would allow reaching
much higher shares of VRE than what has been attained so far.

51
Couture and Gagnon (2010).
52
Pietzcker et al. (2017).
53
Fridgen et al. (2020); Bogdanov et al. (2019).

INTERNATIONAL MONETARY FUND 19

F. A Sectoral Perspective on Climate Policy

35. As the low-hanging fruits in the power sector are being harvested, G20 countries are
ready to move into transportation and other sectors. Reaching net zero emissions by mid-century
requires efforts across all sectors, going beyond the electricity sector (combined with heat, electricity
generation accounts for about a third of global carbon emissions). However, deep emission reductions
in these sectors, unlike in the electricity/heat sector, would likely not be feasible with a combination
of carbon pricing and public investment alone. They would require complementary sector specific
regulations and other government interventions to develop technical solutions (building on existing
ones that are not yet ready for scale-up) and to address certain sector-specific challenges. Setting
sector-specific emission reduction targets can help to keep track of progress and identify need for
further efforts.
Table 2: Sectoral Composition of GHG Emissions in 2018
Sector G20 World
MtCO2e % of Total MtCO2e % of Total
Total 35,671.3 100.0% 48,939.7 100.0%
Agriculture 3,576.3 10.0% 5,817.7 11.9%
Industrial Processes 2,274.7 6.4% 2,902.7 5.9%
Land-Use Change and Forestry -592.8 -1.7% 1,387.6 2.8%
Waste 1,046.4 2.9% 1,606.9 3.3%
Energy 29,366.8 82.3% 37,224.9 76.1%
Building 2,383.9 6.7% 2,882.5 5.9%
Electricity/Heat 13,240.2 37.1% 15,591.0 31.9%
Fugitive Emissions 1,991.7 5.6% 2,883.4 5.9%
Manufacturing/Construction 5,263.9 14.8% 6,158.3 12.6%
Other Fuel Combustion 891.6 2.5% 1,452.0 3.0%
Transportation 5,595.5 15.7% 8,257.7 16.9%
Source: Climate Watch (2020), data from CAIT

Transport Sector

36. In ground transportation decarbonization is possible through public transportation and

electrification. In 2018, almost 17 percent of global greenhouse gas emissions were emitted by the
transportation sector (Table 2). In road transportation, electrification is developing dynamically54, while
the use of hydrogen in road transportation would exceed the production capacity, given that the
green hydrogen production capacity is needed for aviation and shipping until 2050. 55 An important
policy measure for vehicles are feebates, which are already used by several countries, including France,
the Netherlands, and Norway.56 For feebates, a tax is collected for highly emitting vehicles and the
revenue is used to subsidize low-emission vehicles. Another option is to impose a ban on vehicles
with internal combustion engines (ICE) as preannounced by seven G20 countries—typically for 2030-
40) and under consideration in China (see Table 3). Boosting public transportation capacity is an

54
IEA (2020a).
55
Ueckerdt et al. (2021).
56
Yan and Eskeland (2018).

20 INTERNATIONAL MONETARY FUND

important option since it is more energy efficient and less space consuming.57 Supporting this mainly
requires public investments.

37. Green hydrogen and ammonia

Table 3: Bans on Petrol and Diesel Cars
are viable options to decarbonize
Country Start year Applies to
aviation and maritime transport. In
Canada 2040 New vehicle sales
aviation and maritime transport,
China 2035 New vehicle sales
electrification is not possible with current
Costa Rica 2050 New vehicle sales
technology. Instead, the industry could
Denmark 2030 New vehicle sales
switch to synthetic fuels, like green
France 2040 New vehicle sales
hydrogen and ammonia.58 Biofuels are not
Iceland 2030 New vehicle sales
available at sufficient scale, synthetic
Ireland 2030 New vehicle sales
carbon-based fuels are more expensive59
Israel 2030 New vehicle sales
and liquefied natural gas (LNG) has Netherlands 2030 All vehicles
disadvantages such as methane leakage.60 Norway 2025 All vehicles
Producing the green hydrogen or ammonia Slovenia 2030 New vehicle sales
required for aviation in 2050 would require Spain 2040 New vehicle sales
solar panels of 140.000 km2—about half of Sri Lanka 2040 All vehicles
the area of Italy.61 The raw materials for this Sweden 2030 New vehicle sales
much renewable energy are available, but a Taiwan 2040 New vehicle sales
quick increase in demand requires a careful United Kingdom 2030 New vehicle sales
planning of supply. Among the countries Source: various newspaper reports.
62

well suited for the production of zero Note: The table lists all countries that have a concrete
carbon fuels are most of the current fuel government or climate plan to ban petrol and diesel vehicles.
Additional countries are currently debating the introduction of
exporters (because of favorable renewable bans or intend to use weaker policy instruments like incentives.
energy conditions, available desert space in
many cases, as well as existing infrastructure for exporting fuels), but also some others.63

Manufacturing, Construction, and Industrial Processes

38. Many types of low-carbon technologies in manufacturing and construction are still
comparatively expensive and require government support to be implemented. In addition to
consuming electricity (for which the emissions are attributed to electricity/heat), some manufacturing
processes use fossil fuels directly, contributing close to 13 percent of global emissions. Technologies
to decarbonize these processes exist, but they are expensive and boosting take up would require
government support. An example is steel. Steel is today mostly produced with coke-based blast
furnaces, which can be coupled with carbon capture systems or replaced with a new and clean

57
Gota et al. 2019; Brand et al. (2020).
58
Englert et al. (2021a).
59
Englert et al. (2021a).
60
Englert et al. (2021b).
61
Gössling et al. (2021).
62
IEA (2021a).
63
Englert et al. (2021a), Chapter 4.

INTERNATIONAL MONETARY FUND 21

technology called “direct hydrogen reduction”.64 These types of technologies remain expensive and
their widespread adoption would require government support—similar to the support given to
renewable energy in its early stages of development.
39. Emissions from industrial processes cannot be avoided altogether but can be reduced
and compensated through negative emissions. This type of emissions results from chemical
processes (most importantly the production of cement) and account for about 6 percent of global
emissions (in addition to those associated by the electricity consumption and direct consumption of
fossil fuels by the sector). Emissions from industrial processes can be lowered by increasing material
efficiency65, but within limits. The residual thus needs to be compensated through negative emission
technologies to withdraw the emissions at source or from the atmosphere. As carbon storage options
are limited66, using it for these kinds of emissions, which cannot be avoided by other means, seems
the most suitable. Re-using or recycling carbon are further options.

Agriculture

40. The largest part of agricultural emissions originates from livestock production and can
be submitted to Pigouvian taxation. Agriculture contributes 12 percent to global emissions.
Livestock production releases large amounts of methane, a potent greenhouse gas. Enteric
fermentation (40 percent), manure left on pasture (16 percent), manure management (7 percent) and
manure applied to soils (3 percent) are estimated to have accounted for two-thirds of global
agricultural emissions from 2001 to 2011.67 It is possible to determine the content of greenhouse
gases in the products based on livestock. Meat and dairy products could thus be taxed in proportion
to the climate damage they cause.68 This would be an indirect extension of carbon pricing to
agriculture.
41. Incentivizing low-carbon farming practices could mitigate the remaining emissions. The
government can reduce emissions by incentivizing better farming practices, for example through new
feed additives, better slurry management, and biorefining. Reducing fertilizer use can also contribute
to reducing emissions, because the chemical input of nitrogen as fertilizer is an important source of
greenhouse gas emissions. Reducing food loss is another obvious way to reduce emissions.69
Supporting organic farming would sequester more carbon and thus withdraw it from the
atmosphere.70 Even reducing whaling has a positive effect as whales play a role in capturing carbon
from the atmosphere.71

64
Kushnir et al. (2020).
65
Cao et al. 2020; Habert et al. (2020).
66
Fuss et al. (2018).
67
Tubiello et al. (2014).
68
Batini, Parry, and Wingender (2020).
69
Batini, Parry, and Wingender (2020).
70
Lal (2004).
71
Roman et al. (2014); Chami et al. (2019).

22 INTERNATIONAL MONETARY FUND

Other Sectors

42. Other sectors with smaller emission shares require specific approaches to
decarbonization. Reducing emissions from the building sector (6.7 percent of emissions) requires
retrofitting buildings, which means for example improving their insulation. Fugitive emissions (5.6
percent of global GHG) is the unintended leakage of emissions, mostly from handling fossil fuels.
Reducing emissions from that sector will be automatic if less fossil fuels are produced. In addition,
better maintenance and the detection of leaks would also help.
43. Land use change and forestry can be used to withdraw emissions from the atmosphere.
Afforestation has a large potential to create negative emissions by withdrawing carbon from the
atmosphere. This explains why the sector
Figure 11. Employment Effect of Climate
contributed a negative amount to emissions (-
Policy
(contribution to deviation of total employment from baseline,
1.7 percent) in the G20 in 2018. One study
percent) estimated the potential to be as high as 200Gt72,
which is more than four times the global
emissions of 48.9Gt in 2018. This amount can be
absorbed only once because forests absorb
carbon as they grow, but mature forests are
carbon neutral. Using the negative emission
potential requires stopping deforestation and
using available land to increase afforestation. In
addition to conservation policy, fiscal
instruments can be very effective in protecting
Source: IMF staff estimates
and expanding forests.73
Note: The black line shows the aggregate effect.

G. Need for a Just Transition: Ensuring Equity and Creating Opportunities

44. Higher prices for energy and for other carbon-intensive products could raise poverty
and be regressive in some countries. In many advanced economies and some developing
economies, the direct effect of carbon pricing is regressive, meaning that low-income households
would have to pay a higher share of their income than high-income households.74 This is because
many basic needs like heating and transportation are energy intensive. Even where carbon pricing
would be progressive, as estimated to be in the case of India75, higher energy prices could push some
lower-income households into poverty. Moreover, in many countries, a phase-out of fossil fuels can
create increased unemployment in regions where the industry is a major employer, for example in
coal mining regions. In general, climate policy would lead some sectors to expand and others to shrink,

72
Bastin et al. (2019).
73
World Bank (2021).
74
Dorband et al. (2019).
75
IMF (2019a).

INTERNATIONAL MONETARY FUND 23

reducing employment in some sectors but creating new opportunities in others (possibly requiring a
different set of skills) (Figure 11).
45. Revenues from carbon pricing can be used to reduce taxes in a way that benefits lower-
income households and boosts jobs, or to boost spending to support low-income households.
For advanced economies, reducing labor taxes for low-income households is a way of increasing their
net income and supporting job creation.76 The Canadian province of British Columbia, for example,
uses carbon tax revenues to reduce distortionary taxes including personal income taxes and the
corporate income tax. Both the tax and the revenue use are progressive.77 A climate dividend paid to
each household can support non-employed households.78 Switzerland implements this idea by paying
a “carbon dividend” to all households with the revenue from carbon pricing. Alternatively, a system of
targeted cash transfers can be used to boost the net income of low-income households and protect
them from a loss in purchasing power.79 In some countries, providing access to basic infrastructure
like health, education, and access to clean water might be the best way to support low-income
households and help them move out of poverty.80 Green infrastructure investments and
reskilling/retraining programs financed with carbon revenues are also a way of supporting job
transitions from high- to low-carbon sectors. If well targeted based on country characteristics, revenue
recycling can help address political economy obstacles.
46. Climate policy can create geographically concentrated economic decline, but there are
tested approaches for effectively supporting the transition in such areas. When coal mining areas
were affected by mine closures in Japan starting in the late 1950s, the Japanese authorities introduced
a set of targeted employment measures: ”wider area” placement services, vocational training, and
financial assistance for re-employment.81 When coal mine closures affected a large part of western
Germany, the government used similar employment measures as Japan did earlier and in addition
attracted renewable energy producers and investments, for example in modern transport
infrastructure.82 The different levels of government cooperated to set up a deliberate strategy that
included improving infrastructure, education, research facilities as well as cultural, recreational and
environmental aspects to improve the region’s attractiveness. This polycentric approach involving city,
regional, and national governments and institutions aided success.83 Awareness of the damages of
pollution is not sufficient to motivate a mining region to transition into other forms of income
generation. In combination with positive visions of low-carbon futures, however, the intentional exit
from fossil fuels can find public support. In the UK for example, the awareness of pollution did not
affect public opinion strongly. Only when a new vision of a “modern, clean, convenient, smokeless
household” emerged, was there support for a transition away from coal.84

76
Klenert et al. (2018).
77
Beck et al. (2015).
78
Boyce (2018).
79
IMF (2020a).
80
Jakob et al. (2016).
81
Li, Long, and Chen (2013).
82
Oei, Brauers, and Herpich (2020).
83
Oei, Brauers, and Herpich (2020).
84
Turnheim and Geels (2012).

24 INTERNATIONAL MONETARY FUND

H. Conclusion

47. A green investment push can help lead the economy out of the COVID-19 crisis and
make significant progress on mitigating climate change. Moving to net zero emissions will require
a scaling-up of investment over the next decade and a reallocation away from fossil fuels and toward
clean energy. The public sector has a catalytic role to play by providing critical public infrastructure
and other support measures for private investment, and by promoting low-carbon technologies which
are not yet competitive. Estimates of additional public investment needs to align infrastructure with
net zero emissions range between 0.5 to 4.5 percent of GDP cumulatively over the next decade, with
a cluster around 2 percent of GDP.
48. Carbon pricing is essential for reaching net zero emissions at a reasonable overall cost
and can be phased in gradually. Carbon pricing is a very effective tool to reduce carbon emissions
across-the-board by encouraging a reallocation of activity from high- to low-carbon activities and
incentivizing energy efficiency. It also generates revenues which can be used to finance green public
investments and support measures for households and workers affected by the transition. Hard-to-
decarbonize sectors require additional sector-specific policies in addition to carbon pricing. Where
carbon pricing faces political economy obstacles, regulations are an alternative tool to limit emissions,
although they are likely to be more costly to the economy.
49. Stabilizing the global temperature by mid-century requires both immediate and global
climate action, supported by financial and technology support for developing economies. Joint
action in the form of a coordinated green investment push and an international carbon price floor
agreement among the G20—with differentiated prices according to level of development—would be
a valuable first step in putting the global economy on a path to net zero emissions. Financial and
technology support to developing economies which are expected to experience growing emissions
but have little means to pay for the transition will be key to stop global warming.

INTERNATIONAL MONETARY FUND 25

References
Azevedo, Deven, Hendrik Wolff, and Akio Yamazaki. 2018. Do Carbon Taxes Kill Jobs? Firm-Level
Evidence from British Columbia. Smart Prosperity Institute.

Bastin, Jean-Francois, Yelena Finegold, Claude Garcia, Danilo Mollicone, Marcelo Rezende, Devin
Routh, Constantin M. Zohner, and Thomas W. Crowther. 2019. “The Global Tree Restoration
Potential.” Science 365 (6448): 76. https://doi.org/10.1126/science.aax0848.

Batini, Nicoletta, Mario Di Serio, Matteo Fragetta, Giovanni Melina, and Anthony Waldron. 2021.
“Building Back Better: How Big Are Green Spending Multipliers?” IMF Working Papers 2021
(087). https://www.imf.org/en/Publications/WP/Issues/2021/03/19/Building-Back-Better-
How-Big-Are-Green-Spending-Multipliers-50264.

Batini, Nicoletta, Ian Parry, and Philippe Wingender. 2020. “Climate Mitigation Policy in Denmark: A
Prototype for Other Countries.” IMF Working Papers 2020 (235).
https://www.imf.org/en/Publications/WP/Issues/2020/11/12/Climate-Mitigation-Policy-in-
Denmark-A-Prototype-for-Other-Countries-49882.

Beck, Marisa, Nicholas Rivers, Randall Wigle, and Hidemichi Yonezawa. 2015. “Carbon Tax and
Revenue Recycling: Impacts on Households in British Columbia.” Resource and Energy
Economics 41 (August): 40–69. https://doi.org/10.1016/j.reseneeco.2015.04.005.

Bento, Antonio M, Mark R Jacobsen, and Antung A Liu. 2018. “Environmental Policy in the Presence
of an Informal Sector.” Journal of Environmental Economics and Management 90: 61–77.

Bernard, Jean-Thomas, Maral Kichian, and Misbahul Islam. 2018. “Effects of BC’s Carbon Tax on GDP.”
USAEE Research Paper Series, no. 18–329.

Bird, Stephen, and Diana Hernández. 2012. “Policy Options for the Split Incentive: Increasing Energy
Efficiency for Low-Income Renters.” Special Section: Frontiers of Sustainability 48 (September):
506–14. https://doi.org/10.1016/j.enpol.2012.05.053.

Bogdanov, Dmitrii, Javier Farfan, Kristina Sadovskaia, Arman Aghahosseini, Michael Child, Ashish
Gulagi, Ayobami Solomon Oyewo, Larissa de Souza Noel Simas Barbosa, and Christian Breyer.
2019. “Radical Transformation Pathway towards Sustainable Electricity via Evolutionary Steps.”
Nature Communications 10 (1): 1077. https://doi.org/10.1038/s41467-019-08855-1.

Bolton, Patrick, Morgan Despres, Luiz Awazu Pereira Da Silva, Frederic Samana, and Romain
Svartzman. 2020. “The Green Swan Central Banking and Financial Stability in the Age of
Climate Change.” Bank for International Settlements. https://www.bis.org/publ/othp31.htm.

Boyce, James K. 2018. “Carbon Pricing: Effectiveness and Equity.” Ecological Economics 150 (August):
52–61. https://doi.org/10.1016/j.ecolecon.2018.03.030.

Brand, Christian, Jillian Anable, Ioanna Ketsopoulou, and Jim Watson. 2020. “Road to Zero or Road to
Nowhere? Disrupting Transport and Energy in a Zero Carbon World.” Energy Policy 139 (April):
111334. https://doi.org/10.1016/j.enpol.2020.111334.

26 INTERNATIONAL MONETARY FUND

Calderón, César, Enrique Moral-Benito, and Luis Servén. 2015. “Is Infrastructure Capital Productive? A
Dynamic Heterogeneous Approach.” Journal of Applied Econometrics 30 (2): 177–98.
https://doi.org/10.1002/jae.2373.

Cali, Massimiliano, Nicola Cantore, Leonardo Iacovone, Mariana De La Paz Pereira Lopez, and Giorgio
Presidente. 2019. “Too Much Energy: The Perverse Effect of Low Fuel Prices.” Washington, DC:
World Bank Group. http://documents.worldbank.org/curated/en/670351570710975641/Too-
Much-Energy-The-Perverse-Effect-of-Low-Fuel-Prices-on-Firms.

Cao, Zhi, Rupert J. Myers, Richard C. Lupton, Huabo Duan, Romain Sacchi, Nan Zhou, T. Reed Miller,
Jonathan M. Cullen, Quansheng Ge, and Gang Liu. 2020. “The Sponge Effect and Carbon
Emission Mitigation Potentials of the Global Cement Cycle.” Nature Communications 11 (1):
3777. https://doi.org/10.1038/s41467-020-17583-w.

Chami, Ralph, Thomas F Cosimano, Connel Fullenkamp, and Sena Oztosun. 2019. “Nature’s Solution
to Climate Change: A Strategy to Protect Whales Can Limit Greenhouse Gases and Global
Warming.” Finance & Development 56 (004).
https://www.imf.org/external/pubs/ft/fandd/2019/12/natures-solution-to-climate-change-
chami.htm.

Climate Watch. 2020. “GHG Emissions.” Climate Watch. 2020. https://www.climatewatchdata.org/ghg-

emissions.

Couture, Toby, and Yves Gagnon. 2010. “An Analysis of Feed-in Tariff Remuneration Models:
Implications for Renewable Energy Investment.” Energy Policy 38 (2): 955–65.
https://doi.org/10.1016/j.enpol.2009.10.047.

Dorband, Ira Irina, Michael Jakob, Matthias Kalkuhl, and Jan Christoph Steckel. 2019. “Poverty and
Distributional Effects of Carbon Pricing in Low- and Middle-Income Countries – A Global
Comparative Analysis.” World Development 115 (March): 246–57.
https://doi.org/10.1016/j.worlddev.2018.11.015.

EIB. 2021. “Building a Smart and Green Europe in the COVID-19 Era.” European Investment Bank.
https://www.eib.org/en/publications/investment-report-2020.

Englert, Dominik, Andrew Losos, Carlo Raucci, and Tristan Smith. 2021a. “The Potential of Zero-Carbon
Bunker Fuels in Developing Countries.” Washington, DC: World Bank.
https://openknowledge.worldbank.org/handle/10986/35435.

———. 2021b. “The Role of LNG in the Transition Toward Low-and Zero-Carbon Shipping.”
Washington, DC: World Bank. https://openknowledge.worldbank.org/handle/10986/35437.

Fridgen, Gilbert, Robert Keller, Marc-Fabian Körner, and Michael Schöpf. 2020. “A Holistic View on
Sector Coupling.” Energy Policy 147 (December): 111913.
https://doi.org/10.1016/j.enpol.2020.111913.

Fuss, Sabine, William F Lamb, Max W Callaghan, Jérôme Hilaire, Felix Creutzig, Thorben Amann, Tim
Beringer, et al. 2018. “Negative Emissions—Part 2: Costs, Potentials and Side Effects.”
Environmental Research Letters 13 (6): 063002. https://doi.org/10.1088/1748-9326/aabf9f.

INTERNATIONAL MONETARY FUND 27

Global Recovery Observatory. 2021. “Global Recovery Observatory.” Global Recovery Observatory.
2021. https://recovery.smithschool.ox.ac.uk/tracking/.

Gössling, Stefan, Andreas Humpe, Frank Fichert, and Felix Creutzig. 2021. “COVID-19 and Pathways to
Low-Carbon Air Transport until 2050.” Environmental Research Letters 16 (3): 034063.
https://doi.org/10.1088/1748-9326/abe90b.

Gota, Sudhir, Cornie Huizenga, Karl Peet, Nikola Medimorec, and Stefan Bakker. 2019. “Decarbonising
Transport to Achieve Paris Agreement Targets.” Energy Efficiency 12 (2): 363–86.
https://doi.org/10.1007/s12053-018-9671-3.

Graff Zivin, Joshua, and Matthew Neidell. 2012. “The Impact of Pollution on Worker Productivity.”
American Economic Review 102 (7): 3652–73.

Hallegatte, Stephane, Jun Rentschler, and Julie Rozenberg. 2020. “Adaptation Principles: A Guide for
Designing Strategies for Climate Change Adaptation and Resilience.” Washington, DC: World
Bank. https://openknowledge.worldbank.org/handle/10986/34780.

Habert, G., S. A. Miller, V. M. John, J. L. Provis, A. Favier, A. Horvath, and K. L. Scrivener. 2020.
“Environmental Impacts and Decarbonization Strategies in the Cement and Concrete
Industries.” Nature Reviews Earth & Environment 1 (11): 559–73.
https://doi.org/10.1038/s43017-020-0093-3.

Hepburn, Cameron, Brian O’Callaghan, Nicholas Stern, Joseph Stiglitz, and Dimitri Zenghelis. 2020.
“Will COVID-19 Fiscal Recovery Packages Accelerate or Retard Progress on Climate Change?”
Oxford Review of Economic Policy 36 (Supplement_1): S359–81.
https://doi.org/10.1093/oxrep/graa015.

High-Level Commission on Carbon Prices. 2017. “Report of the High-Level Commission on Carbon
Prices.” Washington, DC: World Bank. https://www.carbonpricingleadership.org/report-of-
the-highlevel-commission-on-carbon-prices.

IEA. 2019. “Nuclear Power in a Clean Energy System.” International Energy Agency.
https://www.iea.org/reports/nuclear-power-in-a-clean-energy-system.

———. 2020a. “Global EV Outlook 2020.” Paris: International Energy Agency.

https://www.iea.org/reports/global-ev-outlook-2020.

———. 2020b. “Sustainable Recovery.” Paris: International Energy Agency.

https://www.iea.org/reports/sustainable-recovery.

———. 2021a. “The Role of Critical Minerals in Clean Energy Transitions.” Paris: International Energy
Agency. https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-
transitions.

———. 2021b. “Net Zero by 2050 A Roadmap for the Global Energy Sector.” Paris: International Energy
Agency. https://www.iea.org/reports/net-zero-by-2050.

IMF. 2019a. “FISCAL MONITOR How to Mitigate Climate Change.” Washington, DC: International
Monetary Fund. https://www.imf.org/en/Publications/FM/Issues/2019/09/12/fiscal-monitor-
october-2019.

28 INTERNATIONAL MONETARY FUND

———. 2019b. “Fiscal Policies for Paris Climate Strategies—from Principle to Practice.” Washington,
DC: International Monetary Fund. https://www.imf.org/en/Publications/Policy-
Papers/Issues/2019/05/01/Fiscal-Policies-for-Paris-Climate-Strategies-from-Principle-to-
Practice-46826.

———. 2020a. “World Economic Outlook, October 2020: A Long and Difficult Ascent.” Washington,
DC: International Monetary Fund.
https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-
october-2020.

———. 2020b. “G-20 Surveillance Note.” International Monetary Fund.

https://www.imf.org/external/np/g20/111920.htm.

———. 2021. “G20 Note On Environmentally Sustainable Investment For The Recovery.” International
Monetary Fund. https://www.imf.org/en/Publications/Policy-Papers/Issues/2021/04/29/G20-
Note-On-Environmentally-Sustainable-Investment-For-The-Recovery-460112.

IMF, and OECD. 2021. “Tax Policy and Climate Change: IMF/OECD Report for the G20 Finance Ministers
and Central Bank Governors.” Italy. www.oecd.org/tax/tax-policy/imf-oecd-g20-report-tax-
policy-and-climate-change.htm.

IPCC. 2013. “Summary for Policymakers.” In Climate Change 2013: The Physical Science Basis.
Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel
on Climate Change. Cambridge, United Kingdom and New York, NY, USA.: Cambridge
University Press.

———. 2014. “Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group
III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change.”
Cambridge, United Kingdom and New York, NY, USA: Intergovernmental Panel on Climate
Change (IPCC). https://www.ipcc.ch/report/ar5/wg3/.

———. 2018. “Global Warming of 1.5°C. An IPCC Special Report on the Impacts of Global Warming
of 1.5°C above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways,
in the Context of Strengthening the Global Response to the Threat of Climate Change,
Sustainable Development, and Efforts to Eradicate Poverty.” Geneva, Switzerland:
Intergovernmental Panel on Climate Change. https://www.ipcc.ch/sr15/.

———. 2019. “Climate Change and Land: An IPCC Special Report on Climate Change, Desertification,
Land Degradation, Sustainable Land Management, Food Security, and Greenhouse Gas Fluxes
in Terrestrial Ecosystems.” Intergovernmental Panel on Climate Change.
https://www.ipcc.ch/srccl/.

IRENA. 2021. “Hydropower.” 2021. https://www.irena.org/hydropower.

Jakob, Michael, Claudine Chen, Sabine Fuss, Annika Marxen, Narasimha D. Rao, and Ottmar Edenhofer.
2016. “Carbon Pricing Revenues Could Close Infrastructure Access Gaps.” World Development
84 (August): 254–65. https://doi.org/10.1016/j.worlddev.2016.03.001.

INTERNATIONAL MONETARY FUND 29

Klenert, David, Gregor Schwerhoff, Ottmar Edenhofer, and Linus Mattauch. 2018. “Environmental
Taxation, Inequality and Engel’s Law: The Double Dividend of Redistribution.” Environmental
and Resource Economics 71 (3): 605–24. https://doi.org/10.1007/s10640-016-0070-y.

Kushnir, Duncan, Teis Hansen, Valentin Vogl, and Max Åhman. 2020. “Adopting Hydrogen Direct
Reduction for the Swedish Steel Industry: A Technological Innovation System (TIS) Study.”
Journal of Cleaner Production 242 (January): 118185.
https://doi.org/10.1016/j.jclepro.2019.118185.

Lal, R. 2004. “Soil Carbon Sequestration Impacts on Global Climate Change and Food Security.” Science
304 (5677): 1623. https://doi.org/10.1126/science.1097396.

Li, Huijuan, Ruyin Long, and Hong Chen. 2013. “Economic Transition Policies in Chinese Resource-
Based Cities: An Overview of Government Efforts.” Special Section: Long Run Transitions to
Sustainable Economic Structures in the European Union and Beyond 55 (April): 251–60.
https://doi.org/10.1016/j.enpol.2012.12.007.

Luderer, Gunnar, Christoph Bertram, Katherine Calvin, Enrica De Cian, and Elmar Kriegler. 2016.
“Implications of Weak Near-Term Climate Policies on Long-Term Mitigation Pathways.”
Climatic Change 136 (1): 127–40. https://doi.org/10.1007/s10584-013-0899-9.

McCollum, David L., Wenji Zhou, Christoph Bertram, Harmen-Sytze de Boer, Valentina Bosetti,
Sebastian Busch, Jacques Després, et al. 2018. “Energy Investment Needs for Fulfilling the Paris
Agreement and Achieving the Sustainable Development Goals.” Nature Energy 3 (7): 589–99.
https://doi.org/10.1038/s41560-018-0179-z.

Metcalf, Gilbert E. 2019. “On the Economics of a Carbon Tax for the United States.” Brookings Papers
on Economic Activity 2019 (1): 405–84.

Metcalf, Gilbert E., and James H. Stock. 2020. “Measuring the Macroeconomic Impact of Carbon Taxes.”
AEA Papers and Proceedings 110: 101–6. https://doi.org/10.1257/pandp.20201081.

Moran, Emilio F., Maria Claudia Lopez, Nathan Moore, Norbert Müller, and David W. Hyndman. 2018.
“Sustainable Hydropower in the 21st Century.” Proceedings of the National Academy of
Sciences 115 (47): 11891. https://doi.org/10.1073/pnas.1809426115.

NGFS. 2021. “Progress Report on Bridging Data Gaps.” Network for Greening the Financial System.
https://www.ngfs.net/en/communique-de-presse/ngfs-publishes-progress-report-
preliminary-findings-climate-related-data-gaps.

OECD. 2017. “Investing in Climate, Investing in Growth.” Paris: OECD.

https://www.oecd.org/environment/investing-in-climate-investing-in-growth-
9789264273528-en.htm.

Oei, Pao-Yu, Hanna Brauers, and Philipp Herpich. 2020. “Lessons from Germany’s Hard Coal Mining
Phase-out: Policies and Transition from 1950 to 2018.” Climate Policy 20 (8): 963–79.
https://doi.org/10.1080/14693062.2019.1688636.

Pahle, Michael, Dallas Burtraw, Christian Flachsland, Nina Kelsey, Eric Biber, Jonas Meckling, Ottmar
Edenhofer, and John Zysman. 2018. “Sequencing to Ratchet up Climate Policy Stringency.”
Nature Climate Change 8 (10): 861–67. https://doi.org/10.1038/s41558-018-0287-6.

30 INTERNATIONAL MONETARY FUND

Parry, Ian, Simon Black, and James Roaf. forthcoming. “A Proposal for an International Carbon Price
Floor Among Large Emitters.” IMF Working Paper.
Parry, Ian, Dirk Heine, Eliza Lis, and Shanjun Li. 2014. Getting Energy Prices Right: From Principle to
Practice. International Monetary Fund. https://www.elibrary.imf.org/view/books/071/21171-
9781484388570-en/21171-9781484388570-en-book.xml?language=en.

Parry, Ian, Chandara Veung, and Dirk Heine. 2015. “How Much Carbon Pricing Is in Countries’ Own
Interests? The Critical Role of Co-Benefits.” Climate Change Economics 6 (04): 1550019.

Pietzcker, Robert C., Falko Ueckerdt, Samuel Carrara, Harmen Sytze de Boer, Jacques Després,
Shinichiro Fujimori, Nils Johnson, et al. 2017. “System Integration of Wind and Solar Power in
Integrated Assessment Models: A Cross-Model Evaluation of New Approaches.” Energy
Economics 64 (May): 583–99. https://doi.org/10.1016/j.eneco.2016.11.018.

Pigato, Miria, Simon Black, Damien Dussaux, Zhimin Mao, Miles McKenna, Ryan Rafaty, and Simon
Touboul. 2020. Technology Transfer and Innovation for Low-Carbon Development. International
Development in Focus. The World Bank. https://doi.org/10.1596/978-1-4648-1500-3.

Renssen, Sonja van. 2020. “The Hydrogen Solution?” Nature Climate Change 10 (9): 799–801.
https://doi.org/10.1038/s41558-020-0891-0.

Roman, Joe, James A Estes, Lyne Morissette, Craig Smith, Daniel Costa, James McCarthy, JB Nation,
Stephen Nicol, Andrew Pershing, and Victor Smetacek. 2014. “Whales as Marine Ecosystem
Engineers.” Frontiers in Ecology and the Environment 12 (7): 377–85.
https://doi.org/10.1890/130220.

Schoder, Christian. 2021. “Regime-Dependent Environmental Tax Multipliers.” Washington, DC: World
Bank. https://openknowledge.worldbank.org/handle/10986/35520.

Schwerhoff, Gregor. 2016. “The Economics of Leadership in Climate Change Mitigation.” Climate Policy
16 (2): 196–214. https://doi.org/10.1080/14693062.2014.992297.

Sovacool, Benjamin K., Patrick Schmid, Andy Stirling, Goetz Walter, and Gordon MacKerron. 2020.
“Differences in Carbon Emissions Reduction between Countries Pursuing Renewable Electricity
versus Nuclear Power.” Nature Energy 5 (11): 928–35. https://doi.org/10.1038/s41560-020-
00696-3.

Tubiello, FN, M Salvatore, A Ferrara, S Rossi, R Biancalani, S Federici, H Jacobs, and A Flammini. 2014.
“Agriculture, Forestry and Other Land Use Emissions by Sources and Removals by Sinks.” FAO
Statistics Division Working Paper Series 14 (02). http://www.fao.org/3/i3671e/i3671e.pdf.

Turnheim, Bruno, and Frank W. Geels. 2012. “Regime Destabilisation as the Flipside of Energy
Transitions: Lessons from the History of the British Coal Industry (1913–1997).” Special Section:
Past and Prospective Energy Transitions - Insights from History 50 (November): 35–49.
https://doi.org/10.1016/j.enpol.2012.04.060.

Ueckerdt, Falko, Christian Bauer, Alois Dirnaichner, Jordan Everall, Romain Sacchi, and Gunnar Luderer.
2021. “Potential and Risks of Hydrogen-Based e-Fuels in Climate Change Mitigation.” Nature
Climate Change 11 (5): 384–93. https://doi.org/10.1038/s41558-021-01032-7.

INTERNATIONAL MONETARY FUND 31

UNEP. 2021. “Are We Building Back Better?” United Nations Environment Programme.
https://www.unep.org/news-and-stories/press-release/are-we-track-green-recovery-not-yet.

UNFCCC. 2021. “Nationally Determined Contributions under the Paris Agreement - Synthesis Report
by the Secretariat.” United Nations Framework Convention on Climate Change (UNFCCC).
https://unfccc.int/process-and-meetings/the-paris-agreement/nationally-determined-
contributions-ndcs/nationally-determined-contributions-ndcs/ndc-synthesis-report.

Vohra, Karn, Alina Vodonos, Joel Schwartz, Eloise A. Marais, Melissa P. Sulprizio, and Loretta J. Mickley.
2021. “Global Mortality from Outdoor Fine Particle Pollution Generated by Fossil Fuel
Combustion: Results from GEOS-Chem.” Environmental Research, February, 110754.
https://doi.org/10.1016/j.envres.2021.110754.

Wei, Max, Shana Patadia, and Daniel M. Kammen. 2010. “Putting Renewables and Energy Efficiency to
Work: How Many Jobs Can the Clean Energy Industry Generate in the US?” Energy Policy 38
(2): 919–31. https://doi.org/10.1016/j.enpol.2009.10.044.

World Bank. 2013. “Turn Down the Heat: Climate Extremes, Regional Impacts, and the Case for
Resilience.” Washington, DC: World Bank.
https://openknowledge.worldbank.org/handle/10986/14000.

———. 2020. “State and Trends of Carbon Pricing 2020.” World Bank.
https://openknowledge.worldbank.org/handle/10986/33809.

———. 2021. “Designing Fiscal Instruments for Sustainable Forests.” Washington, DC: World Bank.
https://www.climateinvestmentfunds.org/sites/cif_enc/files/knowledge-
documents/designing_fiscal_instruments.pdf.

Wunderling, N., J. F. Donges, J. Kurths, and R. Winkelmann. 2021. “Interacting Tipping Elements
Increase Risk of Climate Domino Effects under Global Warming.” Earth Syst. Dynam. 12 (2):
601–19. https://doi.org/10.5194/esd-12-601-2021.

Xu, Chi, Timothy A. Kohler, Timothy M. Lenton, Jens-Christian Svenning, and Marten Scheffer. 2020.
“Future of the Human Climate Niche.” Proceedings of the National Academy of Sciences 117
(21): 11350–11355. https://doi.org/10.1073/pnas.1910114117.

Xue, Tao, Tianjia Guan, Guannan Geng, Qiang Zhang, Yong Zhao, and Tong Zhu. 2021. “Estimation of
Pregnancy Losses Attributable to Exposure to Ambient Fine Particles in South Asia: An
Epidemiological Case-Control Study.” The Lancet Planetary Health 5 (1): e15–24.
https://doi.org/10.1016/S2542-5196(20)30268-0.

Yamazaki, Akio. 2017. “Jobs and Climate Policy: Evidence from British Columbia’s Revenue-Neutral
Carbon Tax.” Journal of Environmental Economics and Management 83 (May): 197–216.
https://doi.org/10.1016/j.jeem.2017.03.003.

Yan, Shiyu, and Gunnar S. Eskeland. 2018. “Greening the Vehicle Fleet: Norway’s CO2-Differentiated
Registration Tax.” Journal of Environmental Economics and Management 91 (September): 247–
62. https://doi.org/10.1016/j.jeem.2018.08.018.

32 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 33