IMF cost of emission reductions

In its semi-annual World Economic Outlook released on 3 April 2008, the International Monetary Fund forecast that sharply reducing greenhouse-gas emissions would slow global growth, but only minimally provided that policies are well designed.

The policies needed to reduce emissions by 60% from 2002 would leave the global economy about 2.6% smaller than it otherwise would be in 2040. Even so, the global economy would grow to about 2.3 times its current size between 2007 and 2040.

The IMF study said that all countries need to agree to climate-change mitigation policies because a large percentage of emissions will come from big developing countries.

A global price for emissions should be set, the IMF said. The study didn't choose between a cap-and-trade system and a carbon tax, arguing that the effects of both are similar - they raise the price of carbon emissions. The pricing policies must be “long-term and credible” in order to convince businesses to make necessary investments.

Source: WSJ, 04-06/04/08