{"id":76812,"date":"2025-04-25T14:47:37","date_gmt":"2025-04-25T12:47:37","guid":{"rendered":"https:\/\/dezernatzukunft.org\/?p=76812"},"modified":"2025-05-14T12:14:49","modified_gmt":"2025-05-14T10:14:49","slug":"the-baseline-is-wrong","status":"publish","type":"post","link":"https:\/\/dezernatzukunft.org\/en\/the-baseline-is-wrong\/","title":{"rendered":"The baseline is wrong"},"content":{"rendered":"<p><strong><a href=\"mailto:v.ziesemer@instituut-pe.nl\" target=\"_blank\" rel=\"noopener\">Vinzenz Ziesemer<\/a><\/strong>, Philippa Sigl-Gl\u00f6ckner, Janek Steitz<\/p>\r\n\r\n<p><a class=\"testbutton\" href=\"https:\/\/dezernatzukunft.org\/en\/ziesemer-2025-the-baseline-is-wrong-2\/\" target=\"_blank\" rel=\"noopener\">Download PDF<\/a><\/p>\r\n\r\n\r\n\r\n<div class=\"executivesumgb41\" style=\"border-left: 8px solid #ee6174; text-align: left;\">\r\n<p><strong>How debt sustainability analyses used in the EU ignore climate change <\/strong><\/p>\r\n<p>The European Union has reformed its fiscal rules in late 2024, making debt sustainability analysis (DSAs) the central steering tool for European fiscal policy. DSAs will be used to project debt-to-GDP ratios and derive fiscal policy requirements. In this paper, we show that DSAs currently largely ignore economic impacts resulting from climate damages, as well as from the climate policies needed to satisfy the emissions constraint set by European climate targets. Both will likely reduce economic growth and worsen fiscal indicators, according to relevant literature.<\/p>\r\n<p>We further discuss how the growth impact of climate policy depends on the mix of policy instruments. In the presence of market failures beyond the carbon externality and uncoordinated global climate action, a balanced policy approach including public investment will likely lead to better economic outcomes than an approach based purely on carbon pricing.<\/p>\r\n<p>We show how DSAs can account for the impacts of climate damages and for policies in alignment with the current fiscal constraints (a new baseline). Illustrated by indicative simulations, we show that a more balanced climate policy approach could improve growth and possibly even fiscal indicators vis-\u00e0-vis this new baseline. We conclude that DSA methodology should be reformed to account for European climate targets and highlight some research gaps and modelling inconsistencies that need to be addressed to do so.<\/p>\r\n<\/div>\r\n<h4>Why did we write this paper?<\/h4>\r\n<ul>\r\n<li><span data-contrast=\"auto\">The new European fiscal rules make DSAs the central steering instrument.\u00a0 <\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<li><span data-contrast=\"auto\">And although DSAs now decide on spending and adjustments, they are based on growth assumptions that ignore the EU&#8217;s statutory emissions target.\u00a0 <\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<li><span data-contrast=\"auto\">But the target remains and, whether or not it is taken into account, will influence growth.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<li><span data-contrast=\"auto\">We show how climate damage and climate policy can be systematically taken into account, and why this is necessary to enable both realistic fiscal planning and successful decarbonization. <\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<\/ul>\r\n<h4>What did we learn?<\/h4>\r\n<ul>\r\n<li><span data-contrast=\"auto\">The DSAs used in the EU contain a fundamental error: they largely ignore the economic effects of climate change and climate policy.\u00a0 <\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<li><span data-contrast=\"auto\">Although climate damage and purely price-based climate policy slow down growth, these effects are not taken into account in the forecasts.\u00a0\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<li><span data-contrast=\"auto\">But because the European emissions targets are legally binding and their achievement has economic consequences, this ignorance leads to systematically embellished prospects.\u00a0\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/li>\r\n<li><span data-contrast=\"auto\">The DSAs therefore urgently need to be reformed so that they realistically reflect actual growth risks and political framework conditions.\u00a0<\/span><span data-ccp-props=\"{}\"> <br \/><\/span><\/li>\r\n<\/ul>\r\n<p class=\"executivesum\" style=\"border-left: 8px solid #ee6174; text-align: center;\"><em>Um \u00fcber unsere weiteren Ver\u00f6ffentlichungen auf dem Laufenden zu bleiben, abonniert gerne unseren<\/em><a href=\"https:\/\/dezernatzukunft.us18.list-manage.com\/subscribe?u=e80f99448e2133d2d0099e4cb&amp;id=2a7db2a8a7\"><em> Newsletter<\/em><\/a><em>. <\/em><\/p>","protected":false},"excerpt":{"rendered":"<p>In this paper, we show that DSAs currently largely ignore economic impacts resulting from climate damages, as well as from the climate policies needed to satisfy the emissions constraint set by European climate targets.<\/p>\n","protected":false},"author":102,"featured_media":76813,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[194],"tags":[220,174,55,287,281,258],"class_list":["post-76812","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-papers","tag-eng","tag-europe","tag-fiscal-policy","tag-js-en","tag-psg-en","tag-show-only-english-content-en"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - 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