Climate Change and Fiscal Policy : A Report for APEC
Asia-Pacific Economic Cooperation (APEC) economies display large variation in terms of income per capita. The richest APEC economies have an income per capita about twenty times higher than the poorest ones. So far most work on fiscal policy and cl...
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| Format: | Other Environmental Study |
| Language: | English |
| Published: |
World Bank
2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000333038_20110201000150 http://hdl.handle.net/10986/2734 |
| Summary: | Asia-Pacific Economic Cooperation (APEC)
economies display large variation in terms of income per
capita. The richest APEC economies have an income per capita
about twenty times higher than the poorest ones. So far most
work on fiscal policy and climate change has been written
with developed economies in mind. This report on the use of
fiscal policies for mitigating and adapting to climate
change effects corrects that bias with a particular focus on
the developing economies of APEC. It also plays close
attention to lessons that could be learnt from the advanced
economies of APEC and elsewhere. On mitigation, the report
notes that achieving the ambitious targets adopted by APEC
economies will depend crucially the choice of fiscal policy
instruments. These choices will depend, in turn, on the
characteristics of developing economies, particularly of
their energy sectors. Specifically, mitigation in
developing countries requires a broad-based response with
four key components. First, carbon pricing will be critical,
but will not be sufficient and in some economies and some
sectors may have little or no impact due to pre-existing
distortions. Second, energy sector reforms that liberalize
markets and establish effective regulators so that policies
can support appropriate carbon prices and cost pass-through
in the energy sector will be key. Third, broader economic
reforms may also be important to off-set current bias
towards capital and energy intensive economic growth.
Fourth, technology-based mitigation policies will also be
needed, but, given the mixed track record in this area, must
be chosen with care. Given the many uncertainties involved,
and the multiple reforms needed, a verifiable quantity
anchor for mitigation policy is recommended for developing
economies, such as the energy-intensity target recently
adopted by China. On the adaptation side, fiscal analysis
has so far largely focused on cost projections, but for
policy makers adaptation instruments and decision-making
tools are as or more important. Adaptation instruments
include the provision of public and club goods (such as
infrastructure), public sector pricing reform (in particular
of water) and financial instruments (microcredit and
insurance) which can be cost-effective alternatives to
subsidies. Key to the right choice of instruments (which
will vary from location to location) will be the correct use
of appropriate decision-making tools. In particular, the
social costs and benefits of alternative strategies need to
be analyzed under conditions of uncertainty, in many ways
the hallmark of climate change. Popular tools such as
multi-criteria analysis, vulnerability indexes, and cost-
effectiveness analysis are inadequate to the task. A
combination of Monte Carlo and 'real options'
analysis within a cost-benefit framework is recommended for
adaptation projects. Examples from a range of economies are
provided to demonstrate the utility of such an approach. |
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