Fiscal Challenges in the Green Transition:A Global Perspective

Théo Aphecetche

No 81, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper examines the fiscal implications of the global transition to climate neutrality, focusing on government expenditures, revenues, and the need for a comprehensive fiscal strategy within country-level transition plans. The paper analyses the impact of climate change and policy responses on public finances, highlighting the potential for decreased public revenues and increased expenditures due to climate-related damages and the implementation of mitigation policies. While carbon pricing strategies can initially boost revenues, their long-term success in reducing emissions may lead to lower fiscal income. The paper explores the necessity of investments to support the economic transformation towards a net-zero emission future and discusses the varying degrees of fiscal impact across different regions and policy mixes. The paper stresses the importance of broadening the tax base and incorporating innovative financing strategies to ensure fiscal sustainability during the transition. Through continuous assessment and international coordination, particularly within the G20, the paper suggests approaches to minimise the fiscal risks associated with a disorderly climate transition and to enhance the effectiveness of climate action for the collective global good.

Keywords: Green Transition; Fiscal Sustainability; Carbon Pricing; Nationally Determined Contributions; Country-level Transition Plans; Climate Mitigation. (search for similar items in EconPapers)
JEL-codes: E6 H2 (search for similar items in EconPapers)
Pages: 20 pages
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecobri:081

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