09 Mar 2022

Assessing the fiscal policy impact of the climate transition

Inna Oliinyk / Willem Pieter De Groen / Peter Zwaneveld / Ricardo Vicente

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The transition to net zero emissions by 2050 requires substantial efforts from European governments, which is expected to have an enormous impact on the public finances. Without appropriate assessment, the transition could further pose significant fiscal risks. This paper takes stock of the experiences from national independent fiscal institutions (IFIs) with the assessment of climate transition measures based on a survey of 27 European IFIs. It finds the majority of national IFIs are concerned about the impact of the climate transition on the public finances. Nevertheless, many national IFIs and governments have not conducted comprehensive assessments of their climate transition measures. The few national IFIs that have experience in assessing climate transition measures have been confronted with several challenges in assessing both the direct and indirect impacts of the transition. These included inadequate or insufficient analysis by governments and specialist agencies, a lack of reliable data and macro-economic models, and overall uncertainty about feedback effects and climate risks.

This paper was presented on the European Fiscal Board Annual Conference 2022. The recording of the presentation can be watched here (Minute 9:46 to 10:09) and the presentation downloaded here