The Cost of Climate: How Can Countries Pay for Climate Action?

(Oct. 2 2023) As the window of opportunity to contain global warming closes rapidly, countries are racing to reduce emissions. Many countries are relying heavily on spending measures, like increasing public investment and subsidies for renewable energy-policies that come with large fiscal costs. Relying mostly on spending measures will become increasingly costly, possibly raising debt by 45-50 percent of GDP by midcentury. But prolonging the “business-as-usual” path will leave the world vulnerable to global warming.
This tradeoff can be relaxed by carbon pricing, which is cost-effective in reducing emissions while also generating revenues to relieve the debt burden. However, carbon pricing is often politically unpopular, thus transforming the tradeoff into a trilemma between achieving climate goals, fiscal sustainability, and political feasibility. The IMF’s latest Fiscal Monitor offers new insights on how policymakers can navigate this trilemma and find the optimal policy mix.
Please join CGD, in partnership with the IMF, for a virtual discussion on how countries can balance the competing objectives of achieving climate goals, fiscal sustainability, and political feasibility.

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Robinson Betty Clark Donald Garcia Jennifer