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The fiscal implications of stringent climate policy

Author

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  • Richard S.J. Tol

    (Department of Economics, University of Sussex, BN1 9SL Falmer, United Kingdom)

Abstract

Stringent climate policy compatible with the targets of the 2015 Paris Agreement would pose a substantial fiscal challenge. Reducing carbon dioxide emissions by 95% or more by 2050 would raise 7% (1-17%) of GDP in carbon tax revenue, half of current, global tax revenue. Revenues are relatively larger in poorer regions. Subsidies for carbon dioxide sequestration would amount to 6.6% (0.3-7.1%) of GDP. These numbers are conservative as they were estimated using models that assume first-best climate policy implementation and ignore the costs of raising revenue. The fiscal challenge rapidly shrinks if emission targets are relaxed.

Suggested Citation

  • Richard S.J. Tol, 2023. "The fiscal implications of stringent climate policy," Working Paper Series 0523, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:0523
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    Cited by:

    1. Rao, Amar & Kumar, Satish & Gupta, Prashant, 2025. "Decarbonization dilemmas: Evaluating the impact on energy security and equity in emerging economies," Energy Economics, Elsevier, vol. 145(C).
    2. Matt Burke & Matthew Agarwala & Patrycja Klusak & Kamiar Mohaddes, 2024. "Climate Policy and Sovereign Debt: The Impact of Transition Scenarios on Sovereign Creditworthiness," CAMA Working Papers 2024-73, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Zhou, Zhifang & Yang, Zhuoxuan & Li, Huijia & Liu, Jinhao, 2025. "Regional climate change action and corporate ESG performance - Evidence from China," International Review of Economics & Finance, Elsevier, vol. 100(C).
    4. Erbertseder, Thilo & Jacob, Martin & Taubenböck, Hannes & Zerwer, Kira, 2025. "How effective are emission taxes in reducing air pollution? A satellite-based case study for Spain," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1037-1063.
    5. Chu, Zhongzhu & Zhang, Qiyuan & Tan, Weijie & Chen, Pengyu, 2024. "Assessing the impact of climate policy stringency on corporate energy innovation: Insights from China," Energy Economics, Elsevier, vol. 140(C).
    6. Sultan Sikandar Mirza & Fan Zheng Yi & Frank Scrimgeour & Shaen Corbet, 2025. "Green finance and technological innovation: enhancing carbon emission control in China," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 30(6), pages 1-27, August.
    7. Richard S.J. Tol, 2025. "Climate Determinism Reborn," Working Paper Series 0725, Department of Economics, University of Sussex Business School.
    8. Li, Cong & Zhang, Yue & Liu, Xihua & Sun, Jiawen, 2025. "Does artificial intelligence promote green technology innovation in the energy industry?," Energy Economics, Elsevier, vol. 144(C).
    9. Shah, Syed Sadaqat Ali & Wu, Kai, 2025. "How effective are green spending multipliers? Eco-friendly vs non-eco-friendly spending in OECD economies," Energy Policy, Elsevier, vol. 204(C).

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    Keywords

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    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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