Stress tests on the fiscal impact of extreme weather and climate-related events

Nicola Gagliardi, Pedro Arevalo and Stéphanie Pamies

Quarterly Report on the Euro Area (QREA), 2022, vol. 21, issue 2, 41-52

Abstract: This section analyses the potential impact of climate change on public finances. We focus on the acute physical risks from climate change, with the aim of capturing the fiscal (debt) sustainability impacts associated with extreme weather and climate-related events. This is done by providing first, stylised stress tests in the context of the standard European Commission’s Debt Sustainability Analysis (DSA) framework for selected EU Member States, using a comparative approach. Climate-related aggravating factors to fiscal (debt) sustainability are captured by drawing on information from a global natural disaster database as well as forward-looking estimates of economic losses from different climate events projected under different global warming pathways. Our results highlight that extreme weather and climate-related events may pose risks to fiscal (debt) sustainability in several countries, though the risks remain manageable under standard global warming scenarios. Our findings emphasise the importance of taking large-scale, rapid, and immediate climate mitigation and adaptation measures to dampen the adverse economic social and fiscal impacts of potentially more frequent and intense extreme events. This will reduce countries’ exposure, vulnerability, and debt sustainability risks

Keywords: climate change; extreme weather and climate events; acute physical risks; debt sustainability analysis; public debt. (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0212-04

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