International Monetary Fund chief Christine Lagarde called on Monday 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 centre 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."
(Writing by Paul Carrel)