Bridging the gap
This research has been produced in collaboration with Oxford Economics, one of the world’s leading providers of economic analysis, advice and models.
The aim of this research project was to quantify the level of climate change-related government spending across 10 major economies — Germany, France, UK, Spain, Italy, Japan, US Australia, South Africa and South Korea. It also aims to assess the extent to which expected future austerity in the public sector could impact climate change spending.
There is no internationally agreed definition of what constitutes climate change spending. The United Nations has produced a set of guidelines on expenditure classification by function, which includes spending on environmental protection. This includes a range of items, some of which Oxford Economics viewed as not directly related to climate change, e.g., waste management.
Items that were considered were spending on pollution abatement and R&D spending on environmental protection (including the associated administrative, management and operational costs). In addition, spend on subsidiaries/tax credits for renewable energy and clean technology sourced from a range of national sources were also included.
Having determined current levels of spending on climate change, Oxford Economics then constructed two scenarios between 2012 and 2016 based on the future path of government spending. They assumed that climate change as a share of total spending remained constant and that government spending would grow at its average historical rate (1990–2010) in an attempt to stimulate a “business as usual” scenario where governments were not forced to retrench significantly.
This was compared to a baseline forecast for government spending, which was based on the assumption that governments stick to proposed austerity plans to reduce borrowing. A second scenario was calibrated, in which an escalation of the Eurozone, triggered by disorderly defaults by peripheral governments, generates a significant rise in financial stress as banks are forced to write-down debt, causing a renewed economic slump.
The baseline funding gap quantifies the impact of planned fiscal austerity and scenario 2 quantifies the impact of this and additional cutbacks that would be required were the debt crisis to escalate.