Selected Issues Papers

Deep Dive on the Climate Transition for France: Macroeconomic Implications, Fiscal Policies, and Financial Risks

Author/Editor:

Iulia Ruxandra Teodoru ; Xun Li ; Rachel Lee ; Hugo Rojas-Romagosa ; Nate Vernon

Publication Date:

August 1, 2024

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

Climate change presents an unprecedented long-term challenge to the French and global economy. While France has made significant progress towards reducing greenhouse gas emissions, important additional policy efforts will be needed to meet key mitigation targets. Decarbonization costs and risks can be significant, highlighting the need to identify efficient and equitable fiscal and regulatory policy options to meet emission goals. To accelerate the green transition and mitigate its costs, France has increasingly relied on green spending measures, which could be complemented by higher carbon pricing and other revenue-neutral schemes. Recycling of revenues via cash transfers could offset the price impact on lower-income households. Over the medium term, new measures for road transportation, such as distance-based charges, could also be considered. Ensuring a timely and orderly climate transition will be critical to mitigate the credit risk impact on banks. French banks should also continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes.

Series:

Selected Issues Paper No. 2024/033

Subject:

Environment Greenhouse gas emissions

Frequency:

Regular