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FINANCE AND INVESTMENT 049“ WE GENERALLY RECOMMEND AGAINST SUDDEN AND DRASTIC POLICY CHANGES – IT IS BETTER TO PHASE IN CARBON PRICING GRADUALLY, TO EASE TRANSITIONS AND ALLOW TIME FOR BUSINESSES AND HOUSEHOLDS TO ADJUST THEIR INVESTMENT AND BUDGETING STRATEGIES”benefits from a more stable global climate system (from which we all gain), individual countries are necessarily worse off from carbon mitigation. The prospects of unemployed coal miners for instance can make countries reluctant to raise fuel prices on their own. And indeed, such difficult transitions need to be eased through gradual phase-ins, worker re-training programs, and perhaps temporary assistance for vulnerable firms. The important message to get across, however, is that (as Fund work shows) a substantial amount of carbon pricing is actually in many countries’ own interests because it helps to achieve domestic environmental objectives. For example, reducing deaths due to people inhaling the air pollution caused by burning coal and other polluting fuels – currently outdoor air pollution kills more than three million people a year. So many countries can move ahead unilaterally with carbon pricing and make themselves better off, and contribute to addressing a global problem – they do not need to worry about whether other countries are making progress towards their own mitigation pledges.The final myth is that all countries have to impose the same carbon price. For practical purposes, what really matters is action by the large emitters – twenty of them account for nearly 80 per cent of global emissions – rather than actions in small emitting (especially low-income) countries. In fact, as countries think about international policy coordination as they make progress on mitigation pledges, it may be worth considering the possibility (as a complement to the UN process) of a carbon price floor arrangement among a coalition of the willing. This would leave countries the flexibility to set prices higher than the floor price, which may be efficient if they have large domestic environmental benefits or fiscal needs. Precedents for this approach include, for example, tax floor arrangements for value added taxes and excises on alcohol, tobacco, and energy products in the European Union.THE FUND’S ROLEIn short, we think there is a strong case for phasing in carbon pricing – and establishing carbon taxes, especially in large emitters, and especially as part of a broader fiscal reform – as the centerpiece of countries’ efforts to meet their mitigation targets. How can the Fund help in this process?First, our analytical work provides basic guidance on the design and practical implementation of fiscal policies to mitigate climate change, and other environmental costs of energy, and quantifies, for over 150 countries, the environmental and fiscal benefits of policy reform. This information helps policymakers in crafting the specifics of legislation to meet environmental and fiscal objectives and in convincing stakeholders of the benefits from reform. Second, we can provide technical assistance in this area. In fact we are well positioned in this regard, given our global membership and considerable expertise in fuel tax design, tax administration, and energy price reform.Third, we are continuously promoting the policy dialogue among finance ministers, emphasizing the key role they need to play in championing and administering carbon pricing and ensuring revenues are put to good use.The focus should now be on getting carefully-designed policies into place that can be sustained and strengthened accordingly as we learn more about the risks from global climate change. Let us price it right, tax it smart, and do it now, so we do not end up like cooked chickens! ■ABOUT THE AUTHORChristine Lagarde became the eleventh Managing Director of the IMF, and the first woman to hold that position, in July 2011.She joined the French government in June 2005 from her post as Chairman of the Global Strategic Committee at Baker and McKenzie. Having served as Minister for Foreign Trade and Minister for Agriculture and Fisheries, in June 2007 Christine Lagarde became the first woman to hold the post of Finance and Economy Minister of a G7 country. From July to December 2008, she also chaired the ECOFIN Council, which brings together Economics and Finance Ministers of the European Union. As a member of the G20, Christine Lagarde was involved in the Group’s management of the financial crisis, helping to foster international policies related to financial supervision and regulation and to strengthen global economic governance. As Chairman of the G20 when France took over its presidency for the year 2011, she launched a wide-ranging work agenda on the reform of the international monetary system.Christine Lagarde graduated from law school at Paris West University Nanterre La Défense, and obtained a Master’s degree from the Political Science Institute in Aix en Provence. She was named Officier in the Légion d’honneur in April 2012.