What would be the economic and environmental effects of introducing an international carbon price floor?
In this joint report with the World Economic Forum, we assess the impacts of international carbon pricing scenarios on economies and industries to help inform the debate and provide insights to governments, businesses and civil society looking for solutions for reducing carbon emissions. We also estimate the revenues raised through carbon pricing, which could be used to help manage the transition.
In June, the International Monetary Fund (IMF) put forward a framework to introduce an international carbon price floor (ICPF) that would set a price for emissions pegged to each economy’s stage of development, as a way to incentivise greater participation.
Carbon pricing is just one tool that will help governments and businesses transition to a net zero future. We hope this research will provide information that will be useful to public policymakers seeking to reduce global emissions in time to limit the worst effects of climate change on people and our planet.
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"We found that introducing an ICPF 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.”
Key findings
Download the full report. For a detailed explanation of the economic models that underlie the report, please refer to the PwC’s Technical addendum.
An international carbon price floor could reduce emissions by up to 12.3%
When combined with countries’ existing pledges for emission reductions in their nationally determined contributions (NDCs), an ICPF would help limit the rise in temperatures to 2° Celsius above pre-industrial levels.
And together with strengthened climate ambition and action, this would help give the world a better chance of reaching 1.5° Celsius.
The analysis found little risk that emissions-producing activities would be moved to locations with a low carbon price if an ICPF were adopted widely.
No single lever alone will be able to solve the climate crisis but the report shows carbon pricing can play an important role.
Download the full report
An international carbon price could pay for itself
If the revenues raised by the carbon price are returned to households, GDP would decrease by less than 1% across all scenarios tested.
Over the longer term, much if not all of the GDP loss would be offset by reducing economic losses due to global warming: sea level rise, losses in labour and agricultural productivity, and damage to human health.
The costs to society and business of failing to act are far greater.
The revenues generated by an ICPF could be used to support those most disadvantaged
An ICPF could raise up to 3% of GDP in revenues in some countries, which could be redistributed to households and help deliver a just transition.
Only a small portion of the revenues from carbon pricing in the high-income countries would be needed to offset the GDP cost of adopting the ICPF in low-income countries. Such international climate finance is key to a just transition.
Note: The IMF work on climate has four pillars: carbon pricing, public investment, disclosure standards and just transition.
Download the full report
An international carbon price floor comes with challenges
Carbon pricing is just one tool that will help governments and businesses transition to a net-zero future.
To succeed, the price floor would require international agreement. That would be difficult to gain, though there is precedent for international action. 136 countries recently signed up to the OECD framework on corporate taxation that sets a minimum tax rate on foreign income, showing such agreement is possible.
“There is a move towards collaboration and compromise in areas of taxation in the face of global challenges. We’ve seen it recently with the agreement around a minimum global tax for multinationals. Collective action on climate is complex but essential to limiting global warming to the Paris Agreement's goal of 1.5 degrees Celsius.”
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Andrea Plasschaert
Global Corporate Affairs and Communications, Director, PwC Switzerland
Tel: +41 79 599 9567