A demand side perspective of climate change mitigation categorizes options into ones of “avoid”, “shift” and “improve” (Creutzig, 2018). Exemplified for the case of transport, (i) avoiding transport between locations by using tele-communication technology, (ii) shifting transport away from individual towards public or shared vehicles and (iii) improving transport by using e-cars instead of fossil-fuelled cars, highlights the broad and effective spectrum offered by this perspective on mitigation. Instruments to enable (incentivize or enforce) such options cover pricing (taxation and subsidies), regulation (command and control, spatial planning), and awareness (information). Climate-neutral niche development looming in many areas, particularly in high-emitting sectors such as steel (e.g. hydrogen-based), cement (e.g. circular economy concepts) and energy (renewables, storage and transmission) but also transport (as described above for passenger transport) and buildings (e.g. heat pumps, renovation and plus-energy), require framework conditions and policy measures conducive for their broader and accelerated application and diffusion. While the economy-wide effects of these mitigation measures in terms of welfare, GDP and employment changes are analysed extensively (see for instance Steininger et al., 2021), their implications for public budgets are underexplored.

For public budget implications of mitigation, the project thus aims at investigating both direct public budget implications that occur through deliberate changes in (or omitted) measures of mitigation, and indirect effects from autonomous or co-induced economy-wide changes through mitigation. Examples of indirect effects include those due to responses by regulated agents. Policies that increase the tax rate may not increase but rather reduce overall public revenues due to a narrower tax base: e.g. pricing fossil fuels will co-induce a switch away from diesel cars to e-mobility, with only the fuel of the former taxed substantially to date. The methodological approach concerning pathways towards climate-neutrality thus seeks to analyse and depict in quantitative detail the following two dimensions for their respective demands on public budgets:

  • Which structural components of the public budget are affected by climate change mitigation, in which direction, and to which extent? Climate-neutral socio-economic structures co-determine relative factor and input productivity leading to strong and diverse changes in the composition and size of public revenues. This will impact the level and components of transfers and public expenses covering social security (currently around 42%; Statistik Austria, 2021), merit goods and services such as education (10%) and health (17%) as well as economic affairs (12%) and others (e.g. defence). Hence, indirect effects may govern the change in the level and composition of the public budget. For its quantification we deploy a multi-region multi-sector CGE model.
  • For a pathway of climate neutrality: at what orders of magnitude do financing demands for this transition arise, and what are plausible splits between public and private? This also involves exploring how effective measures of public spending are in supporting the climate-neutral transformation while at the same time contributing to ensure or even advance societal wellbeing? The project investigates policy measures conducive to a fair and inclusive transformation including (un)conditional climate dividend payments to (vulnerable) private households and “green” (re)skilling and training programmes. Often neglected and underrated health co-benefits of climate-neutral structures (Wolkinger et al., 2018) are sought to be identified across measures. Further positive externalities such as technology spill-overs and mobilization of private financial capacities spurred by integrating fiscal and climate policies point to merits of mission-oriented innovation policy approaches (Deleidi et al., 2020; Siegmeier et al, 2018; Steininger et al., 2021). While the impacts of latter will not be possible to be reasonably quantified, the budgetary demands for such policies will be considered.