A global carbon tax is needed to tackle the climate crisis.
That’s the suggestion from the International Monetary Fund (IMF), which warns the “window of opportunity” for containing climate change is closing rapidly and says fiscal policy has a vital role to play in reducing emissions.
It says action to tackle global warming to date has been inadequate and stresses if policymakers don’t act they will face rising sea levels, coastal flooding, more frequent extreme weather events and disruption to food supplies.
The IMF believes carbon taxes levied on the supply of fossil fuels in proportion to their carbon content are the most powerful and efficient way to drive change and notes this method would allow firms and households to find the most affordable ways of decarbonising.
It suggests limiting global warming to 2°C would require a global carbon tax that would rise rapidly to a price of $75 (£59.1) per tonne of carbon dioxide in 2030 – the average price on global emissions is currently only $2 (£1.6) a tonne.
It estimates electricity prices would rise by around 45% cumulatively, with prices for petrol increasing by 15% compared to if no policy action were taken.
The report suggests if carbon taxation is not feasible, emission trading systems could prove equally effective if applied to a wide range of economic activities.