Fiscal effects and the potential implications on economic growth of sea-level rise impacts and coastal zone protection

Ramiro Parrado (), Francesco Bosello, Elisa Delpiazzo, Jochen Hinkel, Daniel Lincke and Sally Brown
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Ramiro Parrado: RFF-CMCC European Institute on Economics and the Environment, Centro Euro-Mediterraneo sui Cambiamenti Climatici
Elisa Delpiazzo: RFF-CMCC European Institute on Economics and the Environment, Centro Euro-Mediterraneo sui Cambiamenti Climatici
Jochen Hinkel: Global Climate Forum
Daniel Lincke: Global Climate Forum
Sally Brown: University of Southampton

Climatic Change, 2020, vol. 160, issue 2, No 7, 283-302

Abstract: Abstract Climate change impacts on coastal zones could be significant unless adaptation is undertaken. One particular macroeconomic dimension of sea level rise (SLR) impacts that has received no attention so far is the potential stress of SLR impacts on public budgets. Adaptation will require increased public expenditure to protect assets at risk and could put additional stress on public budgets. We analyse the macroeconomic effects of SLR adaptation and impacts on public budgets. We include fiscal indicators in a climate change impact assessment focusing on SLR impacts and adaptation costs using a computable general equilibrium model extended with a detailed description of the public sector. Coastal protection expenditure is financed issuing government bonds, meaning that coastal adaptation places an additional burden on public budgets. SLR impacts are examined using several scenarios linked to three different Representative Concentration Pathways: 2.6, 4.5, and 8.5, and two Shared Socioeconomic Pathways: SSP2 and SSP5. Future projections of direct damages of mean and extreme SLR and adaptation costs are generated by the Dynamic Interactive Vulnerability Assessment framework. Without adaptation, all regions of the world will suffer a loss and public deficits increase respect to the reference scenario. Higher deficits imply higher government borrowing from household savings reducing available resources for private investments therefore decreasing capital accumulation and growth. Adaptation benefits result from two mechanisms: (i) the avoided direct impacts, and (ii) a reduced public deficit effect. This allows for an increased capital accumulation, suggesting that support to adaptation in deficit spending might trigger positive effects on public finance sustainability.

Keywords: Adaptation; Sea level rise; Public budgets; Sustainability; Climate change; Computable general equilibrium (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10584-020-02664-y

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