The Shadow Pricing Project

A uniform global carbon price is a cost-minimizing way to achieve CO2 emission reductions. However, the climate externality is not the only one from the use of fossil fuels, and this implies that the optimal taxes on fuels will vary depending on local externalities, such as local pollution and traffic accidents, in addition to the global externality. Previous research by the IMF has shown that these locally optimal taxes can be quite large and by themselves would lead to sizeable reductions in carbon emissions even if carbon were not explicitly taxed. However, in low and middle-income countries, raising the prices of cooking gas and electricity (often generated from coal) can slow or reverse the transition of household cooking and heating from highly polluting firewood and other biomass that kills millions of people to much less polluting gas and electricity. The Shadow Pricing Project of EPFD aims to re-examine optimal fuel prices in developing countries, taking these effects into account. It will examine the potential for recycling revenues to enable not only improvements in the health of the poor but also reduce poverty.

Responsible for all the studies within the EPFD are

E. Somanathan 

Jan Steckel


Tomas Sterner  

Project status
Project | 31 March 2021