A 75 dollar (£56) tax per tonne of carbon emitted in rich countries could help push down global emissions by more than 12% – and would pay for itself, a new report has found.
The size of the global economy measured in gross domestic product (GDP) would fall by just 1% if carbon was taxed, according to proposals from the International Monetary Fund (IMF).
The report, from the World Economic Forum and consultancy PwC found that over the long term, much, if not all, of that drop in GDP would be made up for by avoiding the economic hit from global warming.
The IMF scenario includes a 75 dollar tax for each tonne of carbon emitted by 2030 in high-income countries, 50 dollars (£36.50) in middle-income countries, and 25 dollars (£18) in low-income countries.
Such a tax would put a price on every tonne of carbon that is emitted when a product is made and shipped.
The report also claims that the revenues generated by a global carbon tax could be used to support the most disadvantaged, by redistributing up to 3% of GDP.
But most importantly it would reduce emissions of greenhouse gases by 12.3%, the report finds.
With the climate ambitions that individual countries signed up to in Paris in 2015 – the so-called Nationally Determined Contributions (NDCs) – the carbon tax would help limit global warming to 2C above pre-industrial levels.
But if countries strengthened their ambitions, warming could be limited to just 1.5C.
PwC global chairman Bob Moritz said: “The findings of our analysis are very encouraging. Introducing an ICPF (international carbon price floor) could make a significant contribution to tackling global warming by accelerating emissions reductions.
“We found this could be done without severe economic damage to livelihoods and business, although the effects would be somewhat uneven across the world.
“The costs to society and business of failing to act are far greater. The political and technical challenges remain very significant, but we hope the research will encourage countries to consider pricing carbon in such a way that it scales up effort to reach net-zero in time to limit the worst effects of climate change on people and our planet.”
WEF president Borge Brende said: “The results of analysis of the ICPF are extremely positive. Public-private cooperation will be key for next steps and to accelerate efforts for a more sustainable and inclusive recovery.”