Session 3 Martin Baur and Pierre Alain Bruchez- Swtizerland

Eidgenössisches Finanzdepartement EFD
Eidgenössische Finanzverwaltung EFV
Climate Change
and Long-term Fiscal Sustainability
Video Conference – OECD
17 March 2020
Joint OECD Paris Collaborative on Green Budgeting – 3rd Experts Meeting and the Coalition
of Finance Ministers for Climate Action – 1st Workshop on Helsinki Principle Four
Pierre-Alain Bruchez
Swiss Federal Finance Administration

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Overview and Scope of the Paper
Objective: to gather information on how countries take account of
the long-term fiscal impact of climate change in their fiscal
sustainability reports or similar fiscal publications
Climate Change and Long-term Fiscal Sustainability, P.-A. Bruchez, ÖAB EFV
Video Conference – OECD 17.03.2020

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Environment, Economics and Public
budget

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Uncertainties
Uncertainties about the environmental impact
• Future emissions
• Extreme weather events
• Positive and negative feed-backs
• Biological impact (viruses included)
• Tipping points
Uncertainties about the economic impact
• New technologies
• Adaptation
• Conflicts
• Overall cost of mitigation policies
• Related: preferences (risk aversion, discount rate, equity concern)
Uncertainties about the fiscal impact
• Structure of mitigation policies?
• Allocation of adaptation costs between private agents and State?
• Need for increased redistribution and stabilization policies?
• Positive: non-market impact is less relevant for fiscal impact
Uncertainties make it difficult to quantify the impact of climate change

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Qualitative Studies
Country Date Results Author
Switzer-
land
2016 Brief description of channels
Prevention, damage remediation and adaptation,
international commitments, impact on fiscal revenues
FFA
UK 2019 Link with existing reports
- Climate-change risk assessment
- Network for Greening the Financial System
- Bank of England’s framework for assessing climate-related risks to
financial stability (physical/transition risks)
Discussion of fiscal risks
Extreme weather events, gradual global warming, economic impact of
mitigation policies
OBR
UE 2020 Methodological challenges
Data availability, modelling tools, taxonomy of climate-related fiscal
costs
Transmission channels
Impact of extreme weather events and gradual transformation of the
environment on land, capital, labour, productivity
Examples of fiscal impacts
- Non-discretionary (direct/indirect)
- Discretionary (adaptation/mitigation)
EC

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Quantitative studies (official)
US 2016 “although the combined weight of the quantified mean
expenditure estimates in the assessments in this report
reaches into the tens of billions to hundreds of billions
per year by late-century, this is only a narrow window
into the full fiscal risks of climate change” [GDP in 2016
was 19 Trillion US$]
- Impact for mid-century and late-century on wildland-
fire suppression, crop insurance, air quality and
healthcare, coastal-disaster relief.
- Identification of flood risks to federal property
- Illustrative quantification of lost revenues
OMB

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Quantitative studies (not official)
Germany 2009 Climate change could eventually become a burden for
public finances equal to demographic change. However,
the peaks of those two burdens will hit public finances at
different times.
2050 (temperature increase in Germany: 1.5°C 2021–2050 relative to
1961-1990)(*)
Fiscal impact (in % of GDP): gain of 0.05% to loss of
0.31% (see their Table 37)
2100 (temperature increase in Germany: 2°C in 2071–2100 relative to
1961-1990)(*)
Fiscal impact (in % of GDP): loss of 0.6% to 2.5%
(see their Table 38)
Case studies: international trade, tourism, damages to
buildings, sea level, etc.
Mainly due to impact on fiscal revenues
Main channel (by far): international trade
Uncertainty analysed by Monte-Carlo simulation
Not all impacts could be quantified.
(*) see their Table 9
Infras/
Ecologic

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Quantitative studies (not official)
Austria 2019 Time horizon: 2050 (Austria: average annual
temperature increases by 2.02°C relative to 1981–2010)
Reduction in non-climate related government
consumption: 1.4%.
The reduction of fiscal revenues is somewhat below 600
million euros and the increase of public expenditures
(abstracting from the reduction of government
consumption imposed to stabilize the debt-to-GDP ratio)
is of about the same magnitude.
Impact fields: Agriculture, Forestry, Electricity, Tourism, Catastrophe
Management, and rest: Heating and Cooling, Water, Transport,
Manufacturing and Trade, Cities and Urban Green.
Computable general equilibrium
The authors analyse counterbalancing instruments to
ensure fiscal stability and unchanged public service
provision. Labour tax fares much worse than the other
instruments considered.
In their model, featuring minimum wage, climate change
increases unemployment which plays a key role.
Bachner
Bednar-
Friedl

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Connected Studies
• Fiscal impact of adaptation
e.g. CEPS and ZEW (2010) and World Bank (2010)
• Fiscal instruments for GHG emissions mitigation
e.g. IMF (2019a), IMF (2019b), Krogstrup and Oman (2019)
• Economic impact
e.g. Stern (2007), OECD (2015a), Nordhaus (2018b)
• Impact on the financial market
e.g. NGFS (2019), IMF (2019c)
• Short-term fiscal impact
Other areas of green budgeting
• Framework
e.g. Batten (2018)
See full references in the scoping paper

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Issues for Discussion - Questionnaire
0 Do you have comments on the scoping paper?
1 What are the fiscal policy issues related to climate change that you will
have to manage in the medium or long term?
2 Are there studies assessing the economic impact of climate change on
your country?
3 Have you done preliminary studies for the computation of the long-run
fiscal impact of climate change in your country?
4 Have you actually analysed the long-run fiscal impact of climate change
in your country?
5 Availability
6 If you have not yet started to analyse the long-run fiscal impact of climate
change in your country…
• Where do you see the key elements of a qualitative or quantitative approach for
discussing and modelling climate change within fiscal sustainability analysis?
• What do you consider to be the main limitations that could (or could not) be overcome
within a fiscal sustainability analytical framework.

Session 3 Martin Baur and Pierre Alain Bruchez- Swtizerland

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Session 3 Martin Baur and Pierre Alain Bruchez- Swtizerland