Energy is “pervasively mispriced” around the world the International Monetary Fund’s Managing Director Christine Lagarde declared yesterday.
Her comments came as the IMF published a report which found reforming taxes could significantly reduce pollution-related deaths.
In a speech at the Center for Global Development, Lagarde argued government policies must push for “responsible” energy prices to protect the environment.
This is an issue because “a degraded environment leads to a degraded economy,” she said.
Ms Lagarde pointed the finger at coal: “This is about the dirtiest of all fuels, yet almost no country imposes meaningful taxes on its use.
“Our work suggests that, to reflect the carbon damages alone, a reasonably-scaled charge would amount, on average, to around two-thirds of the current world price of coal.”
In countries where a lot of people are exposed to air pollution, the coal charge should be “even higher—several times higher” she suggested.
This doesn’t mean energy taxes must always go up: “On this point, let me be crystal clear: we are generally talking about smarter taxes rather than higher taxes.”
But Lagarde said keeping energy prices “artificially low is no way to help the poor”: “Instead, policymakers should focus on the overall fairness of the tax system—and make sure that all have access to decent healthcare, education and social benefits.”