Filenews 11 August 2024 - by Theano Thiopoulou
Cyprus is not doing well with tackling climate change, as it is outside its targets and obligations and has low ambition to achieve the targets it has set, which will have a significant impact on public finances in 2027.
The interim report of the Fiscal Council, issued last Wednesday, is particularly revealing of how far behind Cyprus is on an issue that concerns the whole planet and has great economic and social consequences. A recommendation to the Government by the Fiscal Council "is to increase the intensity in the effort to achieve the targets, with preference for the same amounts (close to 1% of GDP) to be spent on infrastructure, protection and improvement of the country's climate footprint, instead of paying corresponding amounts in the form of "fines" to the EU.
For the first time, the issue of the consequences of climate change on public finances is being raised and openly entered into the public debate by the Fiscal Council. "Another important emerging issue, with serious budgetary implications, is the Republic's response to its climate and environmental obligations. In addition to the relevant commitments, preparing for the physical costs of climate change, which has already recorded an increasing trend, is also related to water management, estimated drought and flood episodes, increase in extreme temperatures and forest fires," the report said.
Off-track and unsafe targets
Of particular concern is the fact that the authors of the interim report characteristically state that "in the context of the submission by the Republic of the update of the integrated national energy and climate plan, the Republic has already received preliminary comments from the European Commission.
The comments highlight the lack of planning, while it is also worth mentioning that the targets set at this stage are lower – and in many cases much lower – than the commitments and obligations of the Republic, with the European Commission noting that Cyprus is "off track" for these goals and obligations.
New emissions markets
The interim report records the position that based on the plans and the current legal and political data, as well as the failure to achieve the targets set under the Effort Sharing Regulation, Cyprus is expected to need to proceed with the purchase of emission rights, corresponding to the current markets. related to traditional emissions.
According to the Fiscal Council, "as there is currently neither a primary nor a secondary market for pollution rights, as is the case with the market for hitherto known emission allowances, the estimation of the total cost cannot be done in a safe way.
However, the mechanism requires other member states to secure "rights" on a bilateral basis that have achieved higher targets than their commitments. The whole mechanism portends increased prices of "allowances" in the future, especially in mid-2027, when the first review by the European Commission will be completed.
Impact on the economy
The Fiscal Council, in its August interim report, presents an analysis in which it is noted that "based on current prices of the secondary market of the ETS system, which records higher supply and lower demand than expected of the Effort Sharing system, the costs can amount to up to 1% of GDP.
In such a case, the impact on public finances will be very serious and may reverse the previously expected progress in fiscal support for the Republic.
It should be noted that there is significant political pressure at the European level to mitigate the pressure on Member States to meet climate targets, which may help a relaxed stance on the part of the European Commission and the Council.
The overall policy picture, however, and the hope that the existing rules may be relaxed somewhat by 2027 when the first review emerges, are not wise to be the only "insurance" of the Republic against the pressures it will face for the predicted failure to achieve its goals.
He sings them to the Government
Moreover, the increase in climate "episodes", in the form of extreme weather conditions, floods, forest fires or other phenomena already recording an increase, is likely to reverse the political climate, which is currently Cyprus' only line of defense against the perceived total fiscal cost.
In any case, the political stance with which Cyprus is led to pay high sums for the purchase of "rights" to fail against the targets cannot be judged as fiscally prudent.
Such a policy, explains the Fiscal Council, "will have significant positive macroeconomic implications for the country, while the fiscal impact will be clearly lower due to the fiscal multiplier (currently estimated at 0.75) as well as due to the smoother planning and expenditure profile that can be achieved if, Instead of 'fines', the Republic prefers to pay a corresponding amount in the form of investments."
Precarious objectives
Therefore, the Fiscal Council notes in its interim report, that even if the objectives set by the Republic are fully and timely achieved, Cyprus will be outside its obligations, something that is explicitly mentioned by the European Commission's commentary. "However, more worrying is the fact that, by design, even these targets, which are of low ambition, are judged to be precarious," the Fiscal Council concludes.
What are we and our children at risk from?
More than 200 countries – 193 third countries plus the 27 members of the European Union – have signed the Paris Climate Agreement, a treaty created in 2015 to combat climate change on a global scale.
The Intergovernmental Panel on Climate Change (IPCC), which forms the scientific consensus on the issue, has set itself the objective of keeping the temperature increase below 2 °C and aiming for an even lower temperature increase threshold of 1.5 °C.
According to the European Commission, the effects of climate change are already being felt around the world and are projected to become more frequent and intense in the coming decades.
Without action to tackle climate change, the EU could experience the following events during our children's lifetime: 400,000 premature deaths per year due to air pollution; 90,000 deaths per year due to heatwaves; 40% less water availability in the southern regions of the EU; 2.2 million people at risk of coastal flooding every year; €190 billion in annual economic losses
