IMF Sets Path for Sustainable Development

IMF outlines fiscal approach to sustainable, inclusive development

Carbon taxes, subsidies removal could generate revenues for social safety nets

Need to deliver jobs, reduce inequality, raise social protection for vulnerable

At the Rio+20 United Nations Conference on Sustainable Development delegates focused on renewing the political commitment to sustainable development, taking stock of progress to date and addressing emerging challenges. The conference was held in Rio de Janeiro, Brazil June 20–22, 20 years after the UN’s 1992 Earth Summit in Rio, where countries adopted a blueprint to rethink economic growth, advance social equity, and ensure environmental protection.

Growth based on three pillars

Speaking at the conference, IMF Deputy Managing Director Min Zhu emphasized the need for countries to adopt a sustainable growth path based on three pillars: job creation, reduction of inequality, and increased social protection for the most vulnerable.

At a side event, Tax Subsidy Reform for a Greener Economy, Zhu said an essential condition for a green economy is the need to balance environmental and economic concerns by getting the prices right.

Tax instruments can help ensure that environmental damages and other adverse side effects of economic growth are reflected in the prices paid for energy, transportation, and other industrial products. “Today over 90 percent of global carbon emissions remain untaxed,” said Zhu, adding that in the United States “a carbon tax of $25 per ton of CO2 would amount to 1 percent of GDP, or over $1 trillion in one decade.”

Zhu also said subsidies on fossil fuels—which cost the global economy $409 billion in 2010—should be phased out, emphasizing that, contrary to common perceptions, untargeted subsidies benefit the rich more than the poor. He cited the example of Indonesia, where revenues raised by allowing fuel prices to rise meant that 19 million poor families benefited with direct cash transfers.

"Policymakers need to know precisely how they are to 'get the prices right.' To help, the IMF has recently published a book seeking to provide them with practical guidance for carbon pricing, and stands ready to help any of our members wanting technical assistance in using fiscal instruments to address key environmental problems," said Mick Keen, Deputy Director of the IMF’s Fiscal Affairs Department.

Zhu also spoke about how carbon taxes are not just an incentive to getting the prices right, but how...