This research investigates the effects on GDP and public budget of developed and developing countries of a coastal protection expenditure aimed to offset completely land lost to sea-level rise. First, adaptation action is considered in isolation, then the parallel implementation of the EU mitigation targets for 2020 and 2030 by means of carbon taxation is assumed, finally an “adaptation fund” from the EU in favor of Least Developed Countries (LDCs) financed by carbon tax revenues is considered. Coastal protection is beneficial especially for developing countries, however, in face of GDP benefits that turn to be higher than the costs, the additional expenditure required worsens public deficits. When the EU implements unilaterally its carbon energy package, GDP in developing countries increase because of the presence of a non- negligible carbon leakage, however their public borrowing still deteriorates. Against this background, the adaptation fund could be particularly important. The revenues from the EU carbon tax would be more than sufficient to cover the full coastal protection expenditure in LDCs and allow them to lower their deficit and increase further their GDP. As expected, the deficit in the donor developed countries increases, however, the total deficit cut in developing countries would be even higher, while GDP in the donor will decrease only marginally.
- jel: C68, Q01
- Keywords: Computable General Equilibrium, mitigation, adaptation, climate change