Large-scale investments are needed for climate mitigation and adaptation, yet more work is needed to quantify additional mitigation investment needs, costs of climate hazards, and adaptation investment needs.
In particular, the additional investment needs for mitigation and adaptation in different scenarios are not well quantified, but may require public support. Work for Ministries of Finance includes developing an understanding of how expenditure and revenues impact and are impacted by climate-related hazards and policies.
- Large-scale investments are required for the transition. Current models, despite disregarding significant factors such as natural capital and climate tipping points, suggest the costs of inaction are far higher than the costs of the transition.
- National policy choices and funding mechanisms mobilized to support decarbonization determine to a significant extent the future trajectories for public expenditure, the needs for financial market reform, and the saving-investment balance. While these questions are outstanding, uncertainty beyond modeling remains for MoFs.
- The costs of climate hazards are not reliably measured, though modeling tools that have been deployed indicate potentially very high costs.
- Investment needs for adaptation are poorly quantified and methodological challenges remain, including precise identification of climate hazards to adapt to, definition of time horizons, estimation of vulnerabilities, definition of degrees of adaptation needs, and assessment of the types of adaptation measures to be considered.
MoFs need to prioritize developing green budgeting tools and understanding the emissions footprint associated with public revenues and expenditures. MoFs are also well-placed to evaluate expenditures and budget plans to identify adaptation gaps and assess how to structure financial instruments to support private-sector investment in mitigation and adaptation.
Keywords
budgetary processesfiscal impactsinvestment needsphysical risktransition
