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The fiscal case for adaptation and improved sustainability analysis

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Institution
Environmental Change Institute - University of Oxford
Author(s)
Mathias Weidinger and Nicola Ranger
Published
Topic Area
The economic and fiscal impacts of adaptation and resilience
Question
What is the economic case for adaptation?
Citation

 Environmental Change Institute, University of Oxford (2025) The fiscal case for adaptation and improved sustainability analysis, Contribution to ‘Compendium of Practice from a Global Community of Ministries of Finance and Leading Organizations’, Coalition of Finance Ministers for Climate Action

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The costs of climate disruption to infrastructure assets can strain fiscal budgets and reduce productivity, with knock-on effects for growth, investment, and poverty alleviation.

There are estimated to be significant fiscal benefits of early investment in resilient infrastructure, in terms of both reduced costs and long-term macroeconomic trajectories. The public sector plays multiple critical roles in this respect: financier, regulator, catalyst, and policymaker, to name just a few.

Key Messages

  • Climate disruptions to infrastructure already cost emerging and market and developing economies (EMDEs) an estimated US$390 billion per year, and this will almost certainly deteriorate further in the coming decades unless mitigation and adaptation are significantly increased.
  • Climate change should routinely be integrated with fiscal risk and debt sustainability analyses, including analyzing the benefits of adaptation for fiscal space, fiscal resilience, and sovereign credit ratings. This can help address the false dichotomy that pitches adaptation spending against fiscal prudence, and help avoid a self-reinforcing cycle of spiraling costs of climate-related disasters, lower sovereign credit ratings, and reduced investment in adaption, mitigation, and the Sustainable Development Goals.
  • MoFs can actively investigate how the cost of capital for sovereign financing instruments could be reduced through investment in adaptation, including appropriate disaster risk financing strategies and opportunities for labeled bonds and sustainability-linked sovereign finance.
  • Ending counterproductive expenditures, including climate-damaging subsidies, should become a priority for all stakeholders involved in planning and implementing climate-compatible public finance across the world.
  • A case study for Thailand shows that avoided costs, in terms of reduced borrowing costs and a lower probability of default by sovereigns, could significantly outweigh the necessary initial investments in climate adaptation.
Keywords
adaptationclimate financefiscal impactsfiscal riskinvestment needs