Global carbon tax could cut emissions 12% and limit economic cost - new report

An internationally-agreed minimum carbon price/tax could help to reduce greenhouse gas emissions by about 12 per cent with little cost to economies, according to a report published by professional services firm PwC and the World Economic Forum (WEF).

The cut in gas emissions from a carbon price floor would be limited to less than 2 per cent, however, if countries such as China and also the developing world were to opt out.

The new report, Increasing Climate Ambition: Analysis of an International Carbon Price Floor, examines the potential impact of a proposal made in June by the International Monetary Fund (IMF). It suggested a floor by 2030 on carbon prices of $75 per tonne in high income countries, $60 in middle income countries and $25 for counties in the developing world.

Ireland has already passed legislation ratcheting up the carbon price/tax here to €100 per tonne ($114) by 2030.

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Carbon leakage

The PwC/WEF report modelled 10 scenarios and found that the floor would limit so-called carbon leakage, which is when companies simply move operations from one location to another to escape carbon taxes, negating the objective carbon pricing’s primary objective to reduce overall emissions.

If widely adopted, the carbon floor would reduce emissions by between 9.5 and 12.3 per cent, the report found. If only high-income countries took part, it would be 1.9 per cent, rising to 8 per cent if middle income countries took part.

The IMF’s proposed graduated system could result in huge emissions cuts in major polluters, with 7.7 per cent for India, 11.1 per cent in the US and 16.8 per cent in China.

The PwC/WEF report suggested the hit to the gross domestic product (GDP) of participating countries from the IMF proposal could be as low as 0.6 per cent, and would be more than made up for by the economic and social benefits of avoiding widespread climate damage.

Some developing nations could see rises of close to 3 per cent in GDP, with up to 13 per cent of revenues raised transferred to the developing world.

‘Very encouraging’

“The findings of the analysis are very encouraging,” said Kim McClenaghan, a partner in PwC Ireland’s advisory, energy and utility practice.

She said a carbon pricing could be done “without severe economic damage to livelihoods and business”.

“The costs to society and business of failing to act are far greater. The political and technical challenges remain very significant, but we hope the research will encourage policy makers to consider pricing carbon in such a way that it scales up effort to reach net zero in time to limit the worst effects of climate change.”