London Daily

Focus on the big picture.
Wednesday, Oct 22, 2025

A carbon tax is 'single most powerful' way to combat climate change, IMF says

A carbon tax is 'single most powerful' way to combat climate change, IMF says

Increasing the price of carbon emissions has received widespread backlash from those who argue the tax would raise energy bills. But some economists say it's the best way to mitigate climate change.
The idea of carbon taxes on fossil fuel corporations is spreading, but the idea has received backlash from those who argue the tax would raise energy bills.

Some economists say raising the cost of burning fossil fuels is the best way to mitigate climate change.

The global average carbon price is $2 a ton — a small fraction of the estimated $75 a ton price that is estimated to be consistent with a 2 C warming target, according to an International Monetary Fund report.

Increasing the price of carbon is the most efficient and powerful method of combating global warming and reducing air pollution, according to a new report from the International Monetary Fund.

While the idea of carbon taxes on fossil fuel corporations has been spreading across the globe in the past couple decades, increasing prices on carbon emissions has received widespread backlash from those who argue the tax would raise energy bills.

But economists have long contended that raising the cost of burning fossil fuels like coal, oil and gas is the best way to mitigate climate change, and that revenue raised from the tax can be returned to consumers through rebates and dividends.

“We view fiscal policy as a crucial way of combating climate change,” said Paolo Mauro, deputy director of Fiscal Affairs Department at the IMF. “You can reshape the tax system and you can reshape fiscal policy more generally in order to discourage carbon emissions.”

But economists have long contended that raising the cost of burning fossil fuels like coal, oil and gas is the best way to mitigate climate change, and that revenue raised from the tax can be returned to consumers through rebates and dividends.

“We view fiscal policy as a crucial way of combating climate change,” said Paolo Mauro, deputy director of Fiscal Affairs Department at the IMF. “You can reshape the tax system and you can reshape fiscal policy more generally in order to discourage carbon emissions.”

Global temperatures are projected to rise by roughly 4 C above preindustrial levels by 2100. The 2015 Paris climate accord aims to limit warming to 2 C, with a long shot goal of 1.5 C. Most countries are not on track to achieve those targets, and the U.S. plans to formally withdraw from the Paris agreement in 2020.

More than 40 governments globally have implemented a form of carbon pricing, whether it be through direct taxation on fossil fuel producers or cap-and-trade programs. However, the global average carbon price is $2 a ton — a small fraction of the estimated $75 a ton price in 2030 consistent with a 2 C warming target, according to the report.

The IMF estimates a $75 a ton carbon tax will lead to the amount of emissions scientists estimate will correspond to 2 C of warming. At that level, coal prices would rise by more than 200% above baseline levels in 2030.

Under the same tax, the price of natural gas, which is used for power generation and for heating and cooking in households, would increase by 70% on average, with most of the impact in North and South America, where baseline prices are much lower. Gasoline prices would rise by 5% to 15% in most countries.

For electricity and gas, the price increases might seem substantial. However, those price rises are within the bounds of price fluctuations experienced during the past few decades, according to the IMF.

“If you think about it from a historical perspective, gasoline prices fluctuate ... much more than that,” Mauro said.

“Carbon taxes ... and similar arrangements to increase the price of carbon, are the single most powerful and efficient tool to reduce domestic fossil fuel CO2 emissions,” the report said.

Some countries have prices on carbon
In the U.S., a slew of presidential candidates have vowed to impose a carbon tax on corporations, proposals which have come under attack from President Donald Trump and Republicans, who are repealing environmental regulations.

Most carbon pricing efforts in the U.S. have occurred on the state level. Nine states in the Northeast participate in a cap-and-trade program that hands out carbon pollution permits to power plants, and other states like New Jersey might join that system.

Cap-and-trade programs work by taxing companies if they produce higher emissions than their permit allows. Companies that reduce emissions can sell unused permits to other firms. The government also narrows the number of permits every year, reducing overall emissions.

California has its own cap-and-trade program that includes other polluters in addition to power plants.

In Britain, coal use has gone down substantially after a carbon tax in 2013 prompted electric utilities to switch away from coal.

Canada has a carbon tax that started at $15 per ton of carbon dioxide this year and will rise to $38 per ton by 2022. And China plans to start a cap-and-trade program beginning in 2020.

“The cost of achieving emissions reductions through these approaches would be lower than the costs to people and the planet from climate change,” the report said.

“Finance ministers in all countries are central to designing and implementing policies to meet emissions reductions in the most efficient, equitable, and socially and politically acceptable way.”
Newsletter

Related Articles

0:00
0:00
Close
‘Frightening’ First Night in Prison for Sarkozy: Inmates Riot and Shout ‘Little Nicolas’
White House Announces No Imminent Summit Between Trump and Putin
US and Qatar Warn EU of Trade and Energy Risks from Tough Climate Regulation
Apple Challenges EU Digital Markets Act Crackdown in Landmark Court Battle
Nicolas Sarkozy begins five-year prison term at La Santé in Paris
Japan stocks surge to record as Sanae Takaichi becomes Prime Minister
This Is How the 'Heist of the Century' Was Carried Out at the Louvre in Seven Minutes: France Humiliated as Crown with 2,000 Diamonds Vanishes
China Warns UK of ‘Consequences’ After Delay to London Embassy Approval
France’s Wealthy Shift Billions to Luxembourg and Switzerland Amid Tax and Political Turmoil
"Sniper Position": Observation Post Targeting 'Air Force One' Found Before Trump’s Arrival in Florida
Shouting Match at the White House: 'Trump Cursed, Threw Maps, and Told Zelensky – "Putin Will Destroy You"'
Windows’ Own ‘Siri’ Has Arrived: You Can Now Talk to Your Computer
Thailand and Singapore Investigate Cambodian-Based Prince Group as U.S. and U.K. Sanctions Unfold
‘No Kings’ Protests Inflate Numbers — But History Shows Nations Collapse Without Strong Executive Power
Chinese Tech Giants Halt Stablecoin Launches After Beijing’s Regulatory Intervention
Manhattan Jury Holds BNP Paribas Liable for Enabling Sudanese Government Abuses
Trump Orders Immediate Release of Former Congressman George Santos After Commuting Prison Sentence
S&P Downgrades France’s Credit Rating, Citing Soaring Debt and Political Instability
Ofcom Rules BBC’s Gaza Documentary ‘Materially Misleading’ Over Narrator’s Hamas Ties
Diane Keaton’s Cause of Death Revealed as Pneumonia, Family Confirms
Former Lostprophets Frontman Ian Watkins Stabbed to Death in British Prison
"The Tsunami Is Coming, and It’s Massive": The World’s Richest Man Unveils a New AI Vision
Outsider, Heroine, Trailblazer: Diane Keaton Was Always a Little Strange — and Forever One of a Kind
Dramatic Development in the Death of 'Mango' Founder: Billionaire's Son Suspected of Murder
Two Years of Darkness: The Harrowing Testimonies of Israeli Hostages Emerging From Gaza Captivity
EU Moves to Use Frozen Russian Assets to Buy U.S. Weapons for Ukraine
Europe Emerges as the Biggest Casualty in U.S.-China Rare Earth Rivalry
HSBC Confronts Strategic Crossroads as NAB Seeks Only Retail Arm in Australia Exit
U.S. Chamber Sues Trump Over $100,000 H-1B Visa Fee
Shenzhen Expo Spotlights China’s Quantum Step in Semiconductor Self-Reliance
China Accelerates to the Forefront in Global Nuclear Fusion Race
Yachts, Private Jets, and a Picasso Painting: Exposed as 'One of the Largest Frauds in History'
Australia’s Wedgetail Spies Aid NATO Response as Russian MiGs Breach Estonian Airspace
McGowan Urges Chalmers to Cut Spending Over Tax Hike to Close $20 Billion Budget Gap
Victoria Orders Review of Transgender Prison Placement Amid Safety Concerns for Female Inmates
U.S. Treasury Mobilises New $20 Billion Debt Facility to Stabilise Argentina
French Business Leaders Decry Budget as Macron’s Pro-Enterprise Promise Undermined
Trump Claims Modi Pledged India Would End Russian Oil Imports Amid U.S. Tariff Pressure
Surging AI Startup Valuations Fuel Bubble Concerns Among Top Investors
Australian Punter Archie Wilson Tears Up During Nebraska Press Conference, Sparking Conversation on Male Vulnerability
Australia Confirms U.S. Access to Upgraded Submarine Shipyard Under AUKUS Deal
“Firepower” Promised for Ukraine as NATO Ministers Meet — But U.S. Tomahawks Remain Undecided
Brands Confront New Dilemma as Extremists Adopt Fashion Labels
The Sydney Sweeney and Jeans Storm: “The Outcome Surpassed Our Wildest Dreams”
Erika Kirk Delivers Moving Tribute at White House as Trump Awards Charlie Presidential Medal of Freedom
British Food Influencer ‘Big John’ Detained in Australia After Visa Dispute
ScamBodia: The Chinese Fraud Empire Shielded by Cambodia’s Ruling Elite
French PM Suspends Macron’s Pension Reform Until After 2027 in Bid to Stabilize Government
Orange, Bouygues and Free Make €17 Billion Bid for Drahi’s Altice France Telecom Assets
Dutch Government Seizes Chipmaker After U.S. Presses for Removal of Chinese CEO
×