Climate change is significantly affecting public finances, as highlighted in a blog article from the European Commission. It notes that climate change not only leads to increased state expenditures due to necessary investments in green transition and adaptation to new climatic conditions but also results in immediate fiscal costs owing to natural disasters, which require emergency aid and damage restoration. Furthermore, disruptions in production can reduce tax revenues, while expenses for energy and food support may rise, all of which influence the borrowing costs for states, reflected in the yields of government bonds.

The study referenced in the article analyzes 52 developed and developing countries over the past two decades, focusing on three forms of climate risk: transition risk measured by carbon emission intensity, chronic physical risk indicated by long-term temperature increases, and acute physical risk associated with natural disasters. This comprehensive approach underscores the multifaceted financial implications of climate change, highlighting the urgent need for countries to address their vulnerability to these risks.

Ultimately, the findings emphasize that the impacts of climate change extend far beyond environmental concerns; they complicate fiscal planning and management. Countries must brace for increased costs and potential instability in debt markets, reinforcing the argument that climate action is not only an environmental imperative but a financial necessity as well. This reality calls for immediate and concerted efforts at both national and global levels to mitigate the effects of climate change and safeguard public finances.