The fiscal implications of stringent climate policy

Stringent climate policy compatible with the targets of the 2015 Paris Agreement would pose a substantial fiscal challenge. Reducing carbon dioxide emissions by 95% or more by 2050 would raise 7% (1%-17%) of GDP in carbon tax revenue, half of current, global tax revenue. Revenues are relatively larger in poorer regions. Subsidies for carbon dioxide sequestration would amount to 6.6% (0.3-7.1%) of GDP. These numbers are conservative as they were estimated using models that assume first-best climate policy implementation and ignore the costs of raising revenue. The fiscal challenge rapidly shrinks if emission targets are relaxed.(c) 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).