The case for an international carbon price floor (ICPF)

Carbon pricing—attaching a cost to CO₂ emissions as an incentive to reduce them—is regarded as one tool, among many, that will help governments and businesses transition to a net-zero future. But a recent report from PwC and the World Economic Forum reveals that it could be an absolutely crucial one. The report studied several carbon pricing scenarios. Under the “core” scenario, in which an international carbon price floor (ICPF) like the one proposed by the International Monetary Fund in 2021 is more or less globally adopted, emissions could drop by 12% by 2030. What’s more, this is a solution that can help pay for itself. The report considered the revenues that could be raised through carbon pricing, and then invested in efforts to manage the transition to a low-emissions economy. The IMF proposal suggests using part of the revenues from an ICPF in high-income countries to mitigate adverse effects in other economies. Such transfers could help gain broad participation and make the transition more just. Indicative analysis shows that it would take a fraction of the additional carbon revenue from implementation of the ICPF in the high-income countries, like the US, to offset completely the negative GDP impacts in low-income countries or regions, like sub-Saharan Africa. The reduction in GDP from pricing carbon is estimated to be largely counterbalanced by the avoidance of costs associated with rising temperatures. The level of global collaboration—across regions and economic tiers—to achieve these carbon pricing goals is daunting, and it will require the vocal support and buy-in of CEOs and leaders worldwide.