Economic analysis and modeling tools to assist Ministries of Finance in driving green and resilient transitions

An overview of options and case studies of deployment

This report provides a systematic overview of analytical tools available to Ministries of Finance to help address the policy climate policy questions they face and integrate climate into their economic analysis. It serves as a reference for Ministries of Finance and their partners that want to explore how climate-related economic policy can be analyzed and diverse tools can be used to support climate-informed decision-making.

The report groups the available tools into four categories:

1. Climate-enhanced macroeconomic and sectoral models. These analyze macroeconomic, sectoral, and distributional impacts of aspects of climate change and green and resilient transitions, often building on existing models used by Ministries of Finance.
2. Physical climate and disaster risk models and approaches. These assess climate damages and risks, informing fiscal risk management and adaptation strategies.
3. Decision-making frameworks and other analytical tools. These include cost–benefit analysis and robust decision-making and can provide qualitative and quantitative insights that complement other approaches, particularly in contexts of uncertainty and risk.
4. Ex-post case studies and evaluations. These assess the impacts of implemented climate policies and past transitions, providing insights into effectiveness, challenges, and lessons learned.

The report covers 23 tools, clarifies their use cases, strengths, and limitations, and provides case studies of their deployment. It also maps tools to policy questions to help Ministries of Finance identify those most relevant to their needs and highlights cross-cutting analytical considerations.

Through this overview, the following key messages emerge:

• Different strategies can be used to integrate climate into analytical tools. Ministries of Finance can integrate climate-related factors into their existing economic models and analytical approaches or use tools specifically designed to analyze climate impacts and policies.
• No single tool can answer all relevant questions. Different policy questions require different tools that can capture different variables and perspectives. Multiple tools and sensitivity analyses can provide complementary insights and help assess the robustness of results.
• Tools can be linked or used in conjunction for more comprehensive analysis. The boundaries between tools are not rigid, and they can be combined to leverage their respective strengths, enabling analysis that is both more encompassing and more detailed.
• Continuous learning and development are crucial. Mainstreaming climate in the analysis and decision-making of Ministries of Finance is an evolving process, and peer learning and collaborating with analytical ecosystems are important parts of this.