Commissioned study for the Science Platform on Climate Protection – Financial Implications of Climate Change: Financing Climate Adaptation and Fiscal Resilience

Climate change poses significant structural challenges to the public finance system. The completed study analysed the financial risks arising from extreme weather events, increasing investment needs and long-term adaptation measures. It demonstrated how federal, state and local governments can make their budgets more climate-resilient. The study was conducted by adelphi research in cooperation with the Wegener Center for Climate and Global Change at the University of Graz. The focus was on financing needs for climate adaptation, innovative financing instruments and approaches to prioritising adaptation measures.

The study demonstrated that the annual financing requirement for climate adaptation already lies in the multi-billion euro range and is likely to continue rising. Financially weaker municipalities were particularly affected by these challenges, as the existing system of fiscal equalisation and funding programmes has not been sufficiently effective to date.

New financing approaches such as local levies, catastrophe bonds, parametric insurance, climate-resilient debt clauses and local climate funds were examined. The study identified key challenges for their implementation, particularly regarding data availability and the standardisation of assessment frameworks. Furthermore, cost-benefit, cost-effectiveness and multi-criteria analyses for evaluating and prioritising adaptation measures were examined, and opportunities for further development in practice were outlined.

Overall, the study showed that climate adaptation is a central component of sustainable fiscal policy. The proposals developed for new financing and risk management instruments provide important impetus for further developing the financial architecture of federal, state and local governments and better preparing them for the challenges of climate change.