Module 3: Systemic Risks
Public Budgets
The public budgets used by various levels of government to fulfill their civic role are not only directly exposed to climate risk (e.g., through critical infrastructure), but also indirectly exposed via the economy as a whole.
On the revenue side, public budgets are dependent on various taxes which are, in turn, dependent on such things as personal incomes, corporate profits and property values—any of which can be impacted by climate change. On the expense side, spending pressures on everything from healthcare to infrastructure repair will likely increase as the effects of climate change intensify.
These budgetary challenges can be exacerbated in the event that sovereign, provincial and/or municipal bonds are repriced due to investors’ perception of risk (i.e., increasing the costs of financial government activities). And it could also be compounded by increases in litigation against governments for negligence claims (e.g., inadequate infrastructure, issuing development permits in areas of known risk).
Please watch the following video for an overview of the interaction between climate change and public budgets.
Video attribution: “Climate Change and the Public Budgets” by Todd Thexton, Financial Impact of Climate Change, Adaptation Learning Network is licensed under CC BY 4.0.
For more information on public budgets and fiscal risks, read pages 133 – 138 in chapter 4 (“Managing the Fiscal Risks Associated with Natural Disasters”) in Fiscal Policies for Development and Climate Action. Table 2 on p. 134 provides a summary of some of the main macroeconomic risks and contingent liabilities.