The world must cut greenhouse gas emissions by at least 25% by the end of this decade to achieve carbon neutrality by 2050. In our latest overview of the global economy, we look at the short-term impact of various climate change mitigation policies. for output and inflation. If the right measures are taken immediately and gradually over the next eight years, the costs will be small. However, if the transition to renewable energy is delayed, the costs will be much higher. We have developed a model that divides countries into four regions, namely China, the Eurozone, the US and the rest of the world. We assume that each region introduces fiscally neutral policies, including taxes on greenhouse gas emissions that are gradually increased to achieve a 25% reduction in emissions by 2030, combined with household assistance, low-emission technology subsidies, and payroll tax cuts. fee.

The results show that a package of such measures could slow global economic growth by 0.15-0.25 percentage points per year until 2030, depending on how quickly regions can release mineral fuels for electricity generation. The more difficult the transition to clean electricity, the more emissions tax increases or equivalent regulation are required to encourage the transition, and the higher the macroeconomic costs in terms of production losses and higher inflation. For Europe, the US and China, the cost is likely to be lower, ranging from 0.05 to 0.20 percentage points on average over eight years. Unsurprisingly, costs will be higher for fossil fuel exporters and energy-intensive emerging markets, which together set trends for the rest of the world. This means that countries need to work more together in terms of the finance, know-how and technology needed to bring down costs, especially when it comes to low-income countries. However, in all cases, policymakers should consider the potential long-term production losses due to uncontrolled climate change, which by some estimates could be orders of magnitude higher. In most regions, inflation is growing moderately, from 0.1 percentage points to 0.4 percentage points. Limiting these costs requires climate policy to be incremental, more effective, and credible. If climate policy is only partially credible, firms and households will not consider potential future tax increases when planning their investment decisions.

And it will slow down the transition (less investment in insulation and heating, low emission technologies, etc.), requiring more stringent policies to achieve the same decarbonization goal. As a result, inflation will be higher and GDP growth lower by the end of the decade. We estimate that only partially credible policies could almost double the cost of switching to renewable energy by 2030.

* Mr. Benjamin Carton is an Economist in the Research Department and Mr. Jean-Marc Natal is Associate Director of the Global Research Office in the IMF’s Research Department. The article was published on the DNT blog.