CLIMATE CHANGE AND MACROECONOMIC STABILITY: ECONOMIC COSTS OF ENVIRONMENTAL POLICIES

Abstract

Climate change is now one of the major risks to the macroeconomic stability at global levels. To reduce the effects of climate change, governments are more moving towards environmental policies to control its effects like carbon taxes, emission regulation, renewable energy subsidies, and green fiscal reforms. Nevertheless, such policies can bring both short-term and long-term economic costs and economic gains. This paper looks at how climate change is connected to environmental policy actions and macroeconomic stability based on cross-country panel-data of 2010-2024 of 20 developed and emerging economies. The study uses descriptive statistics, correlation analysis, and multiple regression model to assess the economic costs of environmental policies in terms of impacts on the GDP growth, inflation and fiscal balance. The results indicate that environmental policies do not immediately reduce the cost of production and fiscal strain, but it is beneficial to the long-term macroeconomic stability by enhancing the quality of the environment and sustainable growth. Findings underscore the need to have well thought through environmental policies that would reduce short term macroeconomic shocks and maximize on the long term economic resilience.