File Photo of the International Monetary Fund. (Photo: Reuters)
An effective climate policy can put the global economy on a sustainable path, expected to boost the global GDP in the first 15 years of economic recovery from the COVID-19 crisis by about 0.7 percent of global GDP on average; employment would also improve, with about 12 million being employed globally, the International Monetary Fund (IMF) said in a new analysis released on Wednesday amid the IMF and World Bank annual meetings.
Pairing carbon taxes with policies that curb the impact on consumers’ energy costs can deliver rapid emissions reductions without major negative impacts on output and employment, according to the analysis.
In this regard, the analysis said that countries should initially lean on a green investment stimulus, including investments in clean public transportation, smart electricity grids to incorporate renewable energy, and retrofitting buildings to make them more energy efficient; all ways to build a green infrastructure.
This green infrastructure is expected to enhance global GDP and employment in the initial years of recovery from the COVID-19 crisis, as well as increase productivity in low carbon sectors; thereby incentivizing the private sector to invest in more eco-friendly practices, making it easier to adapt to higher carbon prices.
Yet, despite the benefits on the long run and an initial boost to economic activity, these changes are expected to be costly in the short-term, according to the analysis.
Between 2037 and 2050, the mitigation strategy would hold global GDP down by about 0.7 percent on average each year and by 1.1 percent in 2050 relative to unchanged policies. These costs seem manageable, however, considering that global output is projected to grow by 120 percent between now and 2050, according to the analysis projections.
Meanwhile, low-income households are more likely to be hurt by carbon pricing, as they spend a relatively large share of their income on energy, and are more likely to be employed in carbon-intensive manufacturing and transportation.
In this regard, the analysis said that governments can adopt policies to limit the adverse effects of higher carbon prices on households, including rebating the carbon revenues through cash transfers and adopting higher public spending on clean public infrastructure, which could create new jobs in low-carbon sectors to offset job losses in high-carbon sectors.