Abstract
While ageing-related costs are perceived as the major drivers of fiscal pressure in the EU, concerns over climate-related public expenditures have received comparatively little attention in securing the EU’s long-term fiscal sustainability. Using the Shared Socioeconomic Pathways (SSPs) scenarios as bridging concept for linking the assessment of public cost of demography- and climate-related expenditures, this study proposes a climate risk mainstreaming methodology. We apply a stochastic debt model and assess the potential flood risk in Austria to the public debt and the national disaster fund. Our results indicate that public debt under no fiscal consolidation is estimated to increase from the current level of 84.5% relative to GDP in 2015 to 92.1% in 2030, with macroeconomic variability adding further risk to the country’s baseline public debt trajectory. The study finds that the estimated public contingent liability due to expected flood risk is small relative to the size of economy. The existing earmarked disaster risk reduction (DRR) funding will likely reduce the risk of frequent-and-low impact floods, yet the current budgetary arrangement may be insufficient to deal with rising risk of extreme floods in the future. This prompts the need for further discussions regarding potential reforms of the disaster fund. As many EU member states are in the early stages of designing climate change policy strategies, the proposed method can support the mainstreaming of climate-related concerns into longer-term fiscal and budgetary planning.
Highlights
Longer-term fiscal discipline is increasingly seen as an integral part of sound macroeconomic planning
This study demonstrates the applicability of the proposed approach in the assessment of fiscal impact due to contingent liability arising from future flood risk in Austria
The mainstreaming methodology outlined in the BMethodology for integrating climate-related costs into mainstream fiscal planning^ section is operationalized by means of a stochastic debt assessment and a national disaster fund analysis in this case study
Summary
Longer-term fiscal discipline is increasingly seen as an integral part of sound macroeconomic planning. At the individual country level, a number of studies evaluate the current and future impacts on climate-related expenditures on public budgets, as Schinko et al (2016) for example, find that due to flood risk alone, Austria may experience significant fiscal pressure up to 2030 and 2050.1
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