ISSUE 55 • 2024The Governance BriefFiscal Risks of Climate Change Executive SummaryThe fiscal risks of climate change facing countries in Asia and the Pacific are immense. Climate-related weather disasters and public spending on the climate change mitigation and adaptation investments needed to avoid worst-case climate scenarios and protect livelihoods are placing a significant strain on public finances. But governments in Asia and the Pacific are already taking wide-ranging measures to proactively address these risks. Countries are analyzing the impact of climate change risks on their macroeconomic frameworks, their finance sectors, and the sustainability of their public finances, as well as the suitability of disaster risk financing instruments depending on their economic conditions. Governments are using these analyses to build in fiscal buffers, better align fiscal frameworks with climate targets, and strengthen public financial management practices more broadly. This governance brief explores ways that climate change poses risks to public finances and a number of practical solutions to mitigate these risks. Main takeaways include the following:(i) Policymakers in Asia and the Pacific have access to a broad suite of analytical tools that they can use to better assess the fiscal risks posed by climate change and to develop ways to mitigate these risks.(ii) Many countries in the region already have experience utilizing these tools and are generating important lessons learned that others can consider using these tools.(iii) These tools can be tailored to each country’s own needs and challenges in managing the fiscal risks of climate change. The table on page 12 presents common questions around the fiscal risks that climate change may pose for countries in Asia and the Pacific and the tools that can help policymakers obtain answers to these questions and take action. This study was led and reviewed by Sandeep Bhattacharya, Senior Public Management Specialist (Tax), ADB. The brief was written by Brent Edelman, Climate Fiscal Policy Expert and ADB consultant. We wish to thank Tariq Niazi, Senior Sector Director, Public Sector Management and Governance Group; and Hiranya Mukhopadhyay, Director, Public Sector Management and Governance Group, for providing strategic guidance in the development of this brief. We wish to thank Anjum Israr, Senior Public Management Specialist (Domestic Resource Mobilization), Public Sector Management and Governance Group; Nanki Kaur, Senior Climate Change Specialist (Climate Change Adaptation), Climate Change and Sustainable Development Department; and Declan Magee, Principal Economist, Climate Change and Sustainable Development Department, for peer reviewing the document and providing invaluable comments. Sources and Practical Solutionsby Brent EdelmanThe Governance Brief2Introduction The Asia and Pacific region is on the frontlin...
