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Emanuele Massetti and Mr. Matthieu Bellon
This Staff Climate Note is part of a series of three Notes (IMF Staff Climate Note 2022/001, 2022/002, and 2022/003) that discuss fiscal policies for climate change adaptation. A first Note (Bellon and Massetti 2022, henceforth Note 1) examines the economic principles that can guide the integration of climate change adaptation into fiscal policy. It argues that climate change adaptation should be part of a holistic, sustainable, and equitable development strategy. To maximize the impact of scarce resources, governments need to prioritize among all development programs, including but not limited to adaptation. To this end, they can use cost-benefit analysis while ensuring that the decision-making process reflects society’s preferences about equity and uncertainty. A second Note (Aligishiev, Bellon, and Massetti. 2022, henceforth Note 2) discusses the macro-fiscal implications of climate change adaptation. It reviews evidence on the effectiveness of adaptation at reducing climate change damages, on residual risks, and on adaptation investment needs, and suggests ways to integrate climate risks and adaptation costs into national macro-fiscal frameworks with the goal of guiding fiscal policy. It stresses that lower-income vulnerable countries, which have typically not contributed much to climate change, face exacerbated challenges that warrant increased international support. This third Note considers how to translate adaptation principles and estimates of climate impacts into effective policies.
Emanuele Massetti and Mr. Matthieu Bellon

Copyright Page © 2022 International Monetary Fund Planning and Mainstreaming Adaptation to Climate Change in Fiscal Policy IMF Staff Climate Note 2022/003 Matthieu Bellon and Emanuele Massetti * DISCLAIMER : The IMF Notes Series aims to quickly disseminate succinct IMF analysis on critical economic issues to member countries and the broader policy community. The IMF Staff Climate Notes provide analysis related to the impact of climate change on macroeconomic and financial stability, including on mitigation, adaptation, and transition. The views

Mr. Matthieu Bellon and Emanuele Massetti

Adaptation to Climate Change in Fiscal Policy .” IMF Staff Climate Note 2022/003 , International Monetary Fund , Washington, DC . Bigano , Andrea , Jacqueline M. Hamilton , and Richard S. J. Tol . 2006 . “ The Impact of Climate on Holiday Destination Choice .” Climatic Change 76 ( 3–4 ): 389 – 406 . Boadway , Robin W. 1974 . “ The Welfare Foundations of Cost-Benefit Analysis .” The Economic Journal , 84 ( 336 ): 926 – 39 . Boardman , Anthony E. , David H. Greenberg , Aidan R. Vining , and David L. Weimer . 2017

Mr. Zamid Aligishiev, Emanuele Massetti, and Mr. Matthieu Bellon

2022/001 , International Monetary Fund , Washington, DC . Bellon , Matthieu , and Emanuele Massetti . 2022b . “ Planning and Mainstreaming Climate Change Adaptation in Fiscal Policy .” IMF Staff Climate Note 2022/003 , International Monetary Fund , Washington, DC . Berg , Andrew , Rafael A. Portillo , Edward F. Buffie , Catherine A. Pattillo , and Luis-Felipe Zanna . 2012 . “ Public Investment, Growth, and Debt Sustainability; Putting Together the Pieces .” IMF Working Paper 12/144 , International Monetary Fund , Washington

Mr. Matthieu Bellon and Emanuele Massetti
Adaptation to climate change is a necessity for advanced and developing economies alike. Policymakers face the challenge of facilitating this transition. This Note argues that adaptation to climate change should be part of a holistic development strategy involving both private and public sector responses. Governments can prioritize public investment in adaptation programs with positive externalities, address market imperfections and policies that make private adaptation inefficient, and mobilize revenues for, and distribute the benefits of, adaptation. Although the choice of what should be done and at what cost ultimately depends on each society’s preferences, economic theory provides a useful framework to maximize the impact of public spending. Cost-benefit analysis, complemented by the analysis of distributional effects, can be used to prioritize adaptation programs as well as all other development programs to promote an efficient and just transition to a changed climate. While compensations may be needed to offset damages that are either impossible or too expensive to abate, subsidies for adaptation require careful calibration to prevent excessive risk taking.
Mr. Zamid Aligishiev, Emanuele Massetti, and Mr. Matthieu Bellon
Adaptation to climate change is an integral part of sustainable development and a necessity for advanced and developing economies alike. How can adaptation be planned for and mainstreamed into fiscal policy? Setting up inclusive coordination mechanisms and strengthening legal foundations to incorporate climate change can be a prerequisite. This Note identifies four building blocks: 1. Taking stock of present and future climate risks, identifying knowledge and capacity gaps, and establishing guidance for next steps. 2. Developing adaptation solutions. This block can be guided by extending the IMF three-pillar disaster resilience strategy to address changes in both extreme and average weather and would cover the prevention of risks, the alleviation of residual risks, and macro-fiscal resilience. 3. Mainstreaming these solutions into government operations. This requires strengthening public financial management institutions by factoring climate risks and adaptation plans into budgets and macro-frameworks, and in the management of public investment, assets and liabilities. 4. Providing for transparent evaluations to inform future plans. This involves continually monitoring progress and regularly updating adaptation plans.