Pan-European Assessment of Fiscal Consequence of Climate Extremes

Mochizuki, J. ORCID: https://orcid.org/0000-0003-1000-4251, Mechler, R. ORCID: https://orcid.org/0000-0003-2239-1578, Hochrainer-Stigler, S., & Schinko, T. ORCID: https://orcid.org/0000-0003-1156-7574 (2016). Pan-European Assessment of Fiscal Consequence of Climate Extremes. ECONADAPT Deliverable 5.2.

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Project: Economics of climate change adaptation in Europe (ECONADAPT, FP7 603906)

Abstract

While it remains debatable whether extreme hazard events can be attributable to climate change, disaster events at the European and global scales have already begun to impose significant costs on the public and private sectors. In light of these concerns, work package 5 of the ECONADAPT project comprises a case study of climate risk management, providing comparative analysis of adaptation and disaster risk management for EU member countries. The present analysis focuses on both short- to longer-term changes in the frequency, severity and duration of extreme weather events resulting from climate change.

Building on the recommendations outlined in D 5.1, the aim of report D5.2 is to provide further analytical bases for climate risk analysis, within an iterative risk management framework. In particular, this study focuses on the domain of public finance and fiscal planning, and illustrates how climate risk concerns could be ‘mainstreamed’ into decision-making processes. Through the pan-European assessment of the fiscal consequences of extreme weather events in the EU, this deliverable (1) quantifies extreme event risks (in terms of potential capital stock losses) across an illustrative range of climate scenarios (with a time horizon of 2030 in the short-term and 2050 in the long-term); (2) identifies the fiscal repercussions in terms of public debt trajectories and, (3) identifies options for better stochastic planning to reduce and finance fiscal risks.

Two distinct approaches - fiscal risk scorecard and stochastic debt-assessment- are used to gain both a broader understanding of fiscal and climate risks facing the EU28 member states and a more-in-depth understanding of Austria (the focus of our case study). The results of our analysis (which focuses on increased flood risk), indicate that the economic risk of climate extremes (relative to the size of economic and public finance resources) are estimated to be high in countries such as Hungary, Slovenia Latvia, Lithuania and Slovakia. Furthermore, these countries also have significant need for fiscal consolidation in the medium to long-term, thus proactive fiscal risk management is especially important.

The fact that many EU member states are still in the early stages of designing and implementing their climate change adaptation strategies means that there are ample opportunities to consider an iterative risk management process, where state-of-the art scientific information on risk (hazard, exposure and vulnerability) is mainstreamed into economic and fiscal decision-making. Looking ahead, while EU member states strive for fiscal consolidation, sustainable growth and climate risk management, the mainstreaming of climate risk into fiscal planning will become all the more important.

The new methodologies developed and presented in this deliverable will be useful in informing these discussions.

Item Type: Other
Research Programs: Risk & Resilience (RISK)
Risk, Policy and Vulnerability (RPV)
Depositing User: Michaela Rossini
Date Deposited: 03 Oct 2017 10:19
Last Modified: 27 Aug 2021 17:29
URI: https://pure.iiasa.ac.at/14861

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