Individual carbon pricing beneficial

carbonCARBON pricing not only reduces carbon emissions but has a number of domestic economic benefits, according to new research by the International Monetary Fund (IMF).

The working paper, How much carbon pricing is in countries’ own interests? The critical role of co-benefits, found that putting a price on carbon had a range of benefits including a reduced amount of people killed by outdoor pollution and lower congestion on the roads.

The report stated that countries should begin their own carbon market instead of waiting on the rest of the world. “The potential for co-benefits suggests that countries need not wait on internationally coordinated efforts if some carbon mitigation is in their own
national interests – that is, the domestic environmental benefits exceed the CO2 (carbon dioxide) mitigation costs, leaving aside climate benefits,” it said.

“In most cases, co-benefits primarily reflect reduced air pollution deaths from less coal use, though in some cases they primarily reflect reduced road fuel subsidy distortions and reduced vehicle externalities.”

Furthermore, the research found net economic benefits rose by 23 per cent under nationally efficient carbon prices, rather than a uniform price, for the same 13.5 per cent reduction in emissions from the world’s top 20 emitters.

IMF also stated it had found a “double dividend” from carbon pricing. “If revenues from nationally efficient carbon prices are used to cut broader income taxes, the overall benefits from carbon pricing can increase substantially, on average by about 100 per cent,” it stated.

However, there were major differencesbetween the top 20 emitting nations, making the economic benefits different depending on factors such as existing policies.

For example, economic benefits were more moderate in Italy and Brazil due to minimal use of coal, and motor fuel taxes were close to or exceeded the estimates of corrective taxes.

“Also striking is the cross-country variation in the nationally efficient CO2 price – $291 per ton in Saudi Arabia (with terms of trade effects excluded), $63 per ton in China, $36 in the United States, $11.5 in Australia and -$23 in Brazil (Brazil on average auto corrects for co-benefits through pre-existing policies),” the report stated.

The study concluded that, in terms of the world’s top 20 emitters, the average national benefit would be enough to validate a significant carbon price.

“On average these prices are quite high, $57.5 per ton of CO2, suggesting that (most) high-emitting countries need not wait on global coordination to move ahead with carbon pricing programs because the domestic environmental benefits (dominated, in many cases, by reductions in pollution-related deaths) exceed the mitigation costs,” it stated.

Australia’s nationally efficient price of $11.5/t is less than half of the fixed price that was scrapped this year, which came in at $24.15/t.