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IMF: Hike fossil fuel taxes and reap benefits now

National governments should not wait for a global climate deal to address underpricing of fossil fuels, says IMF

Christine Lagarde: environmental damage is "mission critical" to the IMF

Christine Lagarde: environmental damage is “mission critical” to the IMF

By Megan Darby

Governments should not wait for a global climate deal to hike taxes on fossil fuels.

That was the message, not from a green campaign group, but a groundbreaking study released by the International Monetary Fund (IMF) on Thursday.

The leading financial body said fossil fuels are “widely and substantially underpriced” and correcting those market failures would bring significant benefits.

Christine Lagarde, managing director of the IMF, at the study’s launch described climate change as “the greatest crisis facing our generation”.

The IMF normally concerns itself with fiscal affairs, but Lagarde said environmental damage was “mission critical”.

She explained: “It is bad for an economy to be downgraded – we know that. It is even worse for an economy to be degraded. When the environment is degraded, the economy is degraded as well.”

Fossil fuels have been “a double-edged economic sword”, Lagarde said: “While the world became richer as energy fueled economic expansion, only recently have we come to fully appreciate the damage done to our precious—and irreplaceable—natural resources.”

She quoted the American poet Wendell Berry: “To cherish what remains of the earth and to foster its renewal is our only legitimate hope of survival.”

Efficient tax

The study recommends efficient levels of taxation on coal, gas and motor fuels for more than 150 countries.

Together, these could cut carbon pollution by 23% and raise revenue equivalent to 2.6% of global GDP, it found.

The report’s authors counted the costs associated with air pollution, congestion and traffic accidents as well as climate impacts of burning fossil fuels.

Raising the price of pollution to reflect these impacts will benefit national economies even in the absence of a global agreement to tackle climate change, they concluded.

The report said: “The case for substantially higher energy taxes does not rest on climate change alone. Decisive action need not wait on global coordination.”

Lagarde stressed that she was not advocating higher tax overall, but “smarter tax”.

If countries act on the IMF advice, it could help build momentum towards a global treaty in Paris next year.

It follows IMF research showing fossil fuels are subsidised to the tune of US$1.9 trillion a year. These subsidies are unsustainable and should be scrapped, the IMF argued.

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  • David Rice

    The annoying thing is, everyone knew this already: yet another study did not add to the discussion. Fossil fuels cost consumers far less than what they are worth because the economic loses due to the ecological damage and health care expenses associated with burning fossil fuels are not added. The only fair way to fix the market failure is to tax the people who use fossil fuels.

  • hebintn

    The detrimental environmental and health impacts of mountaintop removal coal mining are facts documented repeatedly in the scientific literature, yet the practice continues. Fossil fuels cause havoc, and you don’t have to be a scientist to see and smell the impact, but our governments continue to drive the use of these fuels. It is essential to fund the transition to clean energy, including new generation nuclear such as LFTR. The trillions of dollars in subsidies that are now afforded fossils should be moved to the clean energy R&D column. Hopefully this will happen before climate change reaches catastrophic conditions. It will happen when deniers around the world are voted out and reason prevails.

    It’s proven over and over that as price goes up consumption goes down. As gasoline prices go down, Detroit makes bigger less efficient cars. This is the only thing consumers understand… conservation and innovation are driven by demand… the one good thing I can think of related to capitalism.

    • George Parigian Jr.

      First of all we have gasoline taxes that are taking in less money now because gasoline use has gone down. There is now talk of raising the tax even more to maintain revenue. Have you EVER considered how much of an economic burden these taxes would be to the average working man or woman who has to drive to work and/or heat their homes in winter? It is like getting a cut in pay! I bet you are the same type of person clamoring for a “living wage,” even as you advocate this nonsense about taxing us away from fossil fuels, well before alternatives are economically viable (for the 99% who are not wealthy)!

      • Craig L’holz

        Pathetic whiny response. And, alternatives (new & old) have been viable for a while now…. why aren’t they more utilized. Because naysayers and biased people will go to war to feed and drink from a deadly cash cow.

      • Warren

        I disagree. We only have two choices: 1) To continue on the current course, and force our grandchildren and theirs to pay the enormous costs of adaption to a 3C, and eventually much higher, rise in Earth’s temperature, and for all the consequences, or 2) we pay much less now, through policies such as carbon tax, to start reducing emissions. Economists, such as Yale’s William Nordhaus, estimate those costs of mitigation as between 1 and 1.5% of incomes, to stabilize warming, and spent through a carbon tax, cap or trade, or similar national policy.
        Yes, you would take a cut in pay. Its either that or force your grandkids to pay much, much more to adapt. We’re leaving them enough of a burden in terms of the national debt. I vote to prevent the biggest of all burdens being left to them.

  • Anarco Soma

    German Industry will eventually have lowest cost power on the planet because of the investment being made in a decentralised grid that is creating significant opportunities to store energy at a negative price for profit. Investing in the future pays dividends – rather than use present fossil fuel taxes as general revenue or in Australia’s case roads more should be directed toward 21st century technology – the tipping point is now -investment in and subsidy of fossil fuels is mal-investment

  • http://www.blindspot.org.uk/ James Greyson

    The IMF should know that taxes are just one way to fix market failures. They also know that calls for tax shifts are routinely ignored by governments, who continue to subsidise fossil fuels because that’s the only game plan they know. If the IMF wanted real change, and not just green PR, they would call for a new game plan and make space for innovation to fix markets failures. http://climatecolab.org/web/guest/plans/-/plans/contestId/1300404/planId/1309209