IMF calls for ‘wise’ taxes to foster greener fuels

IMF Managing Director Christine Lagarde

IMF Managing Director Christine Lagarde

International Monetary Fund chief Christine Lagarde has called for tax reforms to be included in a global climate deal to raise incentives for consumers to reduce their energy consumption and to boost demand for cleaner fuels.

In an opinion piece for German daily Die Welt, Lagarde said the price of greenhouse gas emissions should be at the center of efforts to tackle climate change.

“With a fairer carbon price, energy savings will be encouraged and demand strengthened for cleaner energy sources and ‘greener’ investments,” Lagarde wrote, adding price changes could be achieved via energy taxes.

A new climate deal under negotiation in Paris this week is not expected to include anything more than vague language on carbon pricing after 10 years of emissions trading on the world’s biggest carbon market, the EU Emissions Trading System, has yet to exact a meaningful fee on big polluters.

Lagarde said the best way to proceed would be to complement existing fuel taxes with a carbon levy that would encompass coal, natural gas and other oil products. But she said the taxes must be “wise.”

“Wise taxes must be introduced step by step, such that budgets and households can adjust and new technologies can gain momentum,” she said, adding: “Paris recently saw humanity’s worst side. The climate summit is an opportunity to show its best side.”

Thirty-six countries, meanwhile, gave the official start Monday to an initiative to promote geothermal energy in developing economies as a cleaner alternative to oil, gas and coal.

The Global Geothermal Alliance, launched on the sidelines of the UN climate talks in Le Bourget, aims at a sixfold increase in geothermal electricity production and a tripling of geothermal-derived heating by 2030.

At present, geothermal is growing modestly, at three to four percent per year, providing 12 gigawatts of electricity annually.

But this just a fraction of its overall potential of 100 gigawatts, according to the industry. Only 24 out of 90 countries with geothermal potential actually use the resource.

The alliance said its members will seek to overcome “political uncertainty” about geothermal and strengthen the industry’s skills base.

The Global Geothermal Alliance initiative was sketched out in September 2014 at a summit organized by UN Secretary General Ban Ki-moon.

Members include countries on thermal “hotspots” in Africa, Southeast Asia and Latin America, ranging from Kenya and Tanzania to Malaysia, the Philippines and Guatemala.

Geothermal energy entails drilling into hot rock and using the heated water to generate electricity or provide heating for communities.

It is considered exceptionally clean, as the heat extraction process requires far lower emissions of carbon dioxide (CO2) compared with fossil fuels.

It is also deemed sustainable, given the almost limitless source of the energy, although individual wells can cool down or run out of water.

Obstacles to geothermal are the high cost of drilling and risks entailed in the exploration phase.

“Geothermal energy development particularly in developing countries faces important challenges,” the alliance said.

“Due to risks related to geological drilling during the exploration phase, along with the associated costs, financing the early stage of the process is limited to investors that understand and accept the possible associated risks.”


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