Budget 2022

Climate inaction worries Court of Auditors

In addition to worrying about Luxembourg's growing public debt, the Court of Auditors also said that inaction on climate change will cost the country a lot more. (Photo: Matic Zorman/Archives Maison Moderne)

In addition to worrying about Luxembourg's growing public debt, the Court of Auditors also said that inaction on climate change will cost the country a lot more. (Photo: Matic Zorman/Archives Maison Moderne)

The Court of Auditors issued its opinion on the draft law on the 2022 state budget. Public debt is something to keep an eye on but inaction in the face of global warming could prove extremely costly.

The Court of Auditors--a public finances watchdog--has analysed the draft budget 2022 and the multi-annual financial programming 2021-2025. The whole is summarised in a 156-page document. The institution stressed the importance of keeping an eye on public debt just as it did in its opinion on the budget last year. Debt has increased significantly as a result of government aid paid at the height of the pandemic.

The Court of Auditors welcomed the strategy but recommended “close monitoring of the evolution of the debt and its progressive reduction if the economic situation allows it.” The aim is to “preserve the government's freedom of action in terms of investments and to ensure the country’s resilience in the face of new crises,” said the institution.

The Court of Auditors also welcomed the government's commitment to the ecological transition. The institution stressed that the current and future climate crisis poses a “real danger to the sustainability of our public finances. Inaction in the face of global warming would have dramatic consequences for the entire economy and, moreover, for our public finances. Indeed, the costs of the climate crisis to future generations will far exceed the expenditure that would have to be made today to effectively combat global warming,” the opinion states.

The costs of climate change

On several pages of its opinion, the Court of Auditors looks at the cost of the latest disasters in the world and in Luxembourg. Over the last five years, the state has spent €160m in public aid allocated to natural disaster relief, and insurance companies have paid out €362m in compensation following natural disasters in the country.

Natural disasters have been increasing worldwide for the past 30 years and have a significant cost. For example, the Court of Auditors points out in its opinion that the storms, floods and earthquakes that occurred between 1998 and 2017 place three European countries among the ten most affected countries in the world from a financial point of view: Germany in sixth place ($57.9bn), Italy in seventh place ($56.6bn) and France in tenth place ($43.3bn).

“The climate crisis will generate additional costs for the state, which will weigh increasingly heavily on public finances in the coming years. In this respect, in order to ensure greater visibility and better monitoring of this expenditure, it would be useful to consider the creation of a special fund dedicated to the financing of damages caused by natural disasters”, says the Court of Auditors.

Finally, the court also pointed out that in a particularly uncertain economic environment, the role of central banks has been and continues to be crucial in supporting the economy. "In the face of the climate emergency, central banks could play an essential role in catalysing the reorientation of financial flows towards carbon dioxide (CO2) neutral investments to the detriment of fossil fuels,” it concluded.

This story was first published in French on Paperjam. It has been translated and edited for Delano.