Early action to combat climate change and to deal with its effects can reduce subsequent fiscal risks linked to the climate challenge, leading climate expert Nicholas Stern said on the sidelines of the COP21 climate talks in Paris on Thursday.
Professor Stern was speaking at a panel discussion arranged by the European Bank for Reconstruction and Development on the fiscal implications of climate change policies.
In his presentation to the discussion which aimed to improve the understanding of how climate change policies affect public finances, Lord Stern detailed the direct and indirect impact of national budgets of moving to a low carbon economy.
But he stressed the debate “is not all about cost and risk”. There was growing evidence that taking early action on climate could shield governments from being exposed to such risks.
“This is again evidence that laying the foundations for a greener economy now, diversifying energy sources, reducing emissions, and creative adaptation all contribute to reducing risks, both of course in terms of reducing the risks of climate change but, as this research crucially points out, in terms of managing fiscal space prudently,” he said.
The session, which was introduced by the EBRD’s Managing Director for Country and Sector Economics, Mattia Romani, took place the day before an international accord on climate change is due to be sealed.
In his introductory comments Dr Romani said that besides better carbon pricing and removal of fossil fuel subsidies, governments can benefit from smarter and more transparent revenue sharing contracts on natural resources with the private sector, which avoid the potential downfalls of climate policy on their budgets.
He added that revenues from climate policies should also be used in a smart way, crucially to overcome obstacles crested by vested interests in the economy.
The EBRD event also saw the publication of a new paper, entitled: Government Assets: Risks and Opportunities in a Changing Climate Policy Landscape.
The document provides a methodology for assessing the impact of policies on government budgets and makes a series of recommendations on how governments can fend off the negative impacts of climate policies and also benefit from the opportunities they offer.
The EBRD has now started work on a second phase of the study in which it will apply the methodology to a selected number of the countries where it invests.
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