Without further action to reduce greenhouse gas emissions, the planet is on course to reach temperatures not seen in millions of years, with potentially catastrophic implications. The analysis in this chapter suggests that an initial green investment push combined with steadily rising carbon prices would deliver the needed emission reductions at reasonable transitional global output effects, putting the global economy on a stronger and more sustainable footing over the medium term. Carbon pricing is critical to mitigation because higher carbon prices incentivize energy efficiency besides reallocating resources from high- to low-carbon activities. A green investment push up front would strengthen the macroeconomy in the short term and help lower the costs of adjusting to higher carbon prices. The transitional costs of carbon pricing consistent with net zero emissions by mid-century appear manageable and could be reduced further as new technological innovations develop in response to carbon pricing and green research and development subsidies. Governments can protect those most affected by mitigation by providing targeted cash transfers financed by carbon revenues.
|Title of host publication
|World Economic Outlook: A Long and Difficult Ascent
|Place of Publication
|International Monetary Fund
|Published - 2020