December 21, 2022

By Mauro Pisu (OECD), James Roaf (IMF), Florence Jaumotte (IMF), Ian Parry (IMF), Andrew Prag (OECD), Kurt Van Dender (OECD)

In the historic 2015 Paris Agreement, virtually the entire world signed up to the goal of limiting global temperature increases to 1.5-2C above preindustrial levels. Since then, more than 130 countries have set ambitious greenhouse gas emission (GHG) reduction targets to reach net zero GHG emissions by around mid-century.

However, this is where the similarities end, as the detailed targets and policies countries have so far implemented, or plan to implement, to meet those targets differ greatly.

One thing is clear: at the aggregate level, countries’ near-term ambition and policies are insufficient to bring global GHG emissions on track to meet the Paris temperature goals or to reach net zero emissions by mid-century. Without major policy changes, we may be heading for warming of 3C or more. This would be catastrophic, especially for the poorest and most vulnerable. To avoid the Paris temperature goals slipping permanently out of reach, GHG emissions would have to decline by 25-50 percent below recent levels by 2030, requiring a significant acceleration in emission reductions and drastic policy changes.

The current energy crisis adds to these challenges as it has exposed links and short-term trade-offs between safeguarding energy security and climate goals. The search for alternative sources of energy to oil and gas from Russia has shifted relative prices and, in some countries, increased the use of more polluting fossil fuels, such as coal, at least temporarily. At the same time, the crisis could become a major accelerator of the clean energy transition over the longer-term. For that to happen, international cooperation remains critical to ensure energy security and overcome policymakers’ concerns that other countries may not do their fair share in cutting emissions and relatedly that their industries might lose competitiveness. Aligning energy security with climate goals requires stronger international co-operation underpinned by a shared understanding of the impact of the diverse mitigation policy approaches countries are pursing.

To curtail emissions, countries might use carbon pricing – either via carbon taxes or emissions trading schemes – or other price-based incentives like tradeable emissions standards, feebates and feed-in tariffs for renewable electricity. Or they might use non-pricing instruments such as regulations and green investment and technology subsidies. In fact, countries typically use a combination of these measures, according to their individual circumstances. Identifying the individual and combined effects of the many measures composing countries’ mitigation policy mixes is challenging.

In a new report, the IMF and OECD have joined forces to support the German G7 Presidency on these issues. The report focuses on three key areas to improve the comparison of the impacts of different mitigation policy approaches on emissions and the broader economy

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