RRZ: Decarbonisation Measures Could Cost Budget 1.1% of GDP Annually in Future

Bratislava, 11 March (TASR) - Achieving climate neutrality by 2050 is not only an environmental commitment, but also a fundamental economic transformation with an impact on public finances, analysts of the Budgetary Responsibility Council (RRZ) Daniel Pastorek and Marek Porubsky have stated in their latest commentary. Decarbonisation measures could lead to a gradual deterioration in the balance in Slovakia's public finances by approximately 1.1 percent of gross domestic product (GDP) by 2050. This would also be reflected in a 25-percentage-point (p.p.) increase in the gross public debt. Pastorek and Porubsky pointed out that their analysis uses a tool developed by the Organisation for Economic Cooperation and Development (OECD) to calculate the initial direct fiscal costs. It doesn't take into account the costs of inaction associated with the negative effects of global warming, nor the benefits of its successful mitigation. In the coming weeks, RRZ will also focus on quantifying the macro-fiscal consequences of global warming itself. According to them, the largest part, approximately 60 percent of the negative impact on public finances, arises on the revenue side of the budget. In 2050, the final year of the projection, the annual revenue shortfall will be approximately 0.8 percent of GDP. "This is mainly a consequence of the fact that, if current policies are maintained, the transition to a low-carbon economy would mean a shift away from fossil-fuel consumption, in particular in the transport sector, which would lead to a significant decline in tax revenues linked to their consumption," they explained. Lower tax revenues due to tax incentives for electric mobility are also contributing to the decline in revenues. According to the analysts, these shortfalls cannot be offset by growth in electricity consumption, which is largely exempt from excise duty, or by a temporary slight increase in the volume of value-added tax (VAT) collected linked to a more rapid renewal of vehicles. The negative impact on the expenditure side of the budget represents approximately 40 percent of the total impact of the measures, mainly through expenditures on modernisation investments ranging from 0.2 to 0.5 percent of GDP per year. "In industry, this may primarily involve co-financing the technological modernisation of energy-intensive production processes, in particular the transition of steel-making to electric arc furnaces and the introduction of direct iron reduction technology. The second most significant group of expenditures in the projection is government spending on building renovation and the introduction of low-emission heating technologies," they stated. The analysts also pointed out that the successful implementation of measures to achieve carbon neutrality in Slovakia is an essential contribution to common global climate goals, but it doesn't guarantee a slowdown in global warming without sufficient international coordination. "Public finances may therefore face the negative effects of climate change even if Slovakia meets its commitments unless adequate action is taken at the global level," added the RRZ analysts. am/df