Financing the Green Transition in the Mediterranean: Assessing the Impact and Diversity of Green Finance Tools

This study examines the effects of environmentally related taxes and feed-in tariffs (FiTs) on greenhouse gas (GHG) emissions in Mediterranean countries, while also exploring the role of broader green finance instruments in the region. The study highlights several key findings. First, environmentally related taxes and climate taxes, while not significantly reducing per capita GHG emissions when applied alone, appear to become more effective when combined with stringent environmental policies. Specifically, a 1 percentage point increase in these taxes leads to a 0.01-0.02% decrease in GHG emissions per capita, with more stringent policies amplifying their impact. Similarly, the presence of FiTs does not consistently reduce emissions unless tariffs are increased for specific energy sources such as hydro, waste, or marine energy, leading to a more pronounced decline in emissions. Green finance mechanisms are necessary but not sufficient on their own; their success depends on alignment with complementary fiscal and regulatory policies. A comprehensive policy mix—phasing out fossil fuel subsidies, implementing carbon pricing, and reinforcing environmental regulation—is crucial for enabling a credible transition to a low-carbon economy in the Mediterranean.