Just to keep the national debt within limits, it is necessary that countries reduce CO emissions2 high prices. If they do not do this, the costs of climate policy will become so high that countries will collapse under their debt. The International Monetary Fund (IMF) delivers this message in its six-monthly meeting Fiscal Monitor.
Climate policy is urgently needed, the IMF has no doubts about that. But it sees governments struggling with what it calls a ‘trilemma’: they want to simultaneously achieve climate goals and control the national debt and make plans that are politically feasible. For fear of too much political resistance, many countries opt for plans that do not hinder business, but cost a lot of government money, such as subsidies for renewable energy.
The IMF points to the United States, for example, which is shying away from a high price for CO2emissions, but last year allocated 400 billion dollars for investments in green energy. The European Union’s Green Deal also contains many plans that cost a lot of government money. Ultimately, this is unsustainable, the IMF warns. The national debt of countries that choose this course could increase by 45 to 50 percentage points.
Business as usual is no longer possible
Making the polluter pay by pricing CO2emissions is a measure that actually makes money for governments. This can be done directly, with a tax per ton of CO2, but it can also be done through a so-called emissions trading system, such as the European Union has. 49 countries are already doing something similar, other countries should quickly follow, according to the IMF. In addition, the price must increase significantly. Now the average is 20 dollars per tonne of CO2, in the European Union it is charged around 100 euros. But the IMF predicts that this should increase to $130 by 2030 and even to $235 by 2050.
That doesn’t make countries rich. CO2 pricing is widely considered effective, so emissions will decrease. As a result, government revenues will also shrink again after a peak in 2030, the IMF predicts. But that’s no reason to do nothing. On the contrary, CO is postponed every year2According to the IMF scenarios, pricing will eventually lead to an increase in the national debt of 0.8 to 2 percentage points – “although such estimates are subject to large uncertainties”.
Every country must look for a mix of measures that make money or cost money, says the IMF, and that mix is different for emerging economies and developing countries than for a country such as the Netherlands. And the best mix is not free either: national debt will grow on average to 10 to 15 percent of gross domestic product, the IMF predicts for the year 2050. “But continue business as usual will not stop global warming, with potentially catastrophic consequences.”
Also read:
The Dutch climate goals are in sight for the first time, but there is no guarantee
With the announced climate policy, the climate goals for 2030 are within reach for the first time. But, the Netherlands Environmental Assessment Agency (PBL) warns: all uncertain factors must then be favourable, such as the weather.