Title page 1

Contents 5

Dedication 4

Contributors 12

Acknowledgments 15

1. Overview 16

PART I. Fiscal Resilience and Climate Action 23

2. Climate Vulnerability and Fiscal Sustainability: Assessing the Revenue and Expenditure Trade-Offs in Asia (2001-2021) 24

2.1. Background 24

2.2. Theoretical Framework Linking Climate Vulnerability and Debt Sustainability 27

2.3. Methodology and Data 31

2.4. Results and Discussion 39

2.5. Contribution and Future Research 50

2.6. Policy Recommendations 51

2.7. Conclusion 53

References 54

3. Linking Fiscal Strength to Climate Action: Evidence from Environmental Fiscal Instruments and Threshold Effects in Asia and the Pacific 58

3.1. Introduction 58

3.2. Brief Review of Literature 60

3.3. Data and Variables 64

3.4. Empirical Strategy 65

3.5. Results and Discussion 70

3.6. Policy Recommendations 82

3.7. Conclusion 84

References 86

4. Debt, Climate, and Development in Asia and the Pacific: Breaking the Vicious Circle 89

4.1. Introduction 89

4.2. Debt and Development Challenges in the Asia and Pacific Region 91

4.3. Debt and Climate Change in the Asia and Pacific Region: The Risk of an Accelerating Vicious Circle of Debt, Climate Change,... 102

4.4. Debt Resolution as a Catalyst for Green and Inclusive Growth in Asia and the Pacific 107

4.5. Conclusion 112

References 113

Appendix 117

PART II. Mainstreaming Climate-Related Fiscal Policies and Impacts 122

5. Advancing Sustainable Public Procurement in Asia and the Pacific 123

5.1. Introduction and Context 123

5.2. Global Developments and Regional Trends in Sustainable Public Procurement 127

5.3. Financing Vehicles and Market Engagement for SPP 133

5.4. Sustainable Public Procurement Policy Approaches, Regulatory Instruments, Technical Standards 138

5.5. Measuring Performance and Enabling Continuous Improvement 143

References 149

6. Do Climate Budget Reforms Move the Needle? Panel and Synthetic Evidence from Asia and the Pacific 158

6.1. Introduction 158

6.2. Literature Review 161

6.3. Methodology 164

6.4. Results 168

6.5. Policy Implications and Recommendations 190

6.6. Conclusion 193

References 196

7. The Fiscal Impact of the People's Republic of China's Emissions Trading System Pilot Programs 200

7.1. Introduction 200

7.2. Literature Review 204

7.3. Data and Empirical Methodology 206

7.4. Results 210

7.5. Conclusion 226

References 228

8. Climate Change Budget Tracking 230

8.1. Overview of Climate Change Budget Tracking 230

8.2. The Building Blocks of Effective Climate Change Budget Tracking 243

8.3. Climate Change Budget Tracking Challenges and Opportunities 251

8.4. Final Observations 253

8.5. Conclusion 255

References 256

PART III. Fiscal Policy and Carbon Emissions 264

9. Carbon Taxation and the Geography of Equity: Evidence from Industrial Emissions, Factory Activity, and Income Disparities in Thailand 265

9.1. Introduction 265

9.2. Policy Context: Carbon Pricing in Thailand 268

9.3. Research Design 269

9.4. Data 270

9.5. Methodology 271

9.6. Empirical Results 275

9.7. Spatial Distribution of Industrial Emissions, Heavy Industry, and Income Vulnerability 276

9.8. Carbon Tax and Redistribution Simulation Outcomes 280

9.9. Conclusion and Discussion 284

References 287

10. Assessing Local Environmental Spending and Air Pollution Reduction in Indonesia: A Satellite Data Approach 289

10.1. Introduction 289

10.2. Environmental Spending in Indonesia 292

10.3. Literature Review 294

10.4. Data and Methodology 298

10.5. Empirical Results 305

10.6. Correlational Findings of Environmental Budget Expansion on Local Air Pollution 313

10.7. Conclusion 315

References 317

Appendix 322

PART IV. Climate Finance and Fiscal Policy 324

11. Climate Finance, Renewable Energy, and Fiscal Sustainability in Pacific Island Developing States 325

11.1. Introduction 325

11.2. Literature Review 326

11.3. Data and Methodology 328

11.4. Results and Discussion 333

11.5. Policy Implications 341

11.6. Conclusion 343

References 345

12. Nature-Based Carbon Finance to the Rescue? Tracing the Evolution and Future of Japan's Joint Crediting Mechanism 347

12.1. Introduction 347

12.2. Genesis and Evolution of Japan's Joint Crediting Mechanism 349

12.3. Challenges to the Joint Crediting Mechanism 355

12.4. A Nature-Based Pivot 361

12.5. Conclusion 366

References 369

Table 2.1. Definition and Sources of Variables 38

Table 2.2. Vulnerability Summary by Vulnerability Range, 2021 39

Table 2.3. Vulnerability Summary by Region, 2021 39

Table 2.4. Vulnerability Summary by Income Level, 2021 40

Table 2.5. Country Profile Based on Climate Vulnerability-Income Composition 40

Table 2.6. Baseline Regression Results (Aggregate Sample), 2001-2021 42

Table 2.7. Ratio Scaling Regression Results (Aggregate Sample), 2001-2021 44

Table 2.8. Heterogeneity by Climate Vulnerability Groups 45

Table 2.9. Heterogeneity by Income Groups 46

Table 2.10. Heterogeneity by Regions 47

Table 2.11. Climate Exposure as Explanatory Variable (Aggregate Sample), 2001-2021 49

Table 2.12. Heterogeneity by Climate Vulnerability Groups 50

Table 2.13. Heterogeneity by Income Groups 50

Table 3.1. Regression Results of Influence of Green Fiscal Instruments on Climate Action Outcomes 71

Table 3.2. Regression Results of Causal Impact of Fiscal Strength (Capacity and Vulnerability) 74

Table 3.3. Instrumental Variable Regression Results 75

Table 3.4. Summary Table of Threshold Values of Fiscal Variables 80

Table 3.5. Robustness of Fiscal Capacity Thresholds to Regulatory Stringency and Subsidy Controls 81

Table 4.1. Developing Asia and the Pacific (Excluding the PRC) Publicly Guaranteed External Debt Stock by Creditor Class, Share of Total, 2008-2023 92

Table 4.2. Climate Vulnerability and External Debt Distress Among the Asia and Pacific Economies Eligible for the PRGT 103

Table 4.3. Developing Asia Debt and Climate Heatmap 105

Table 6.1. Key Explanatory Variables Used in the Study 165

Table 6.2. Panel Estimates Across Model Specifications of Public Environmental Expenditures 175

Table 6.3. Synthetic Control Method Weights, by Treated and Donor Countries 184

Table 6.4. Difference-in-Differences Estimates of Green Budgeting Effects and Placebo Comparison 186

Table 7.1. Overview of ETS Pilot Programs Rollout in the People's Republic of China 202

Table 7.2. Summary Statistics 207

Table 7.3. Regression Results: Total Revenue, Expenditure, and Balance 212

Table 7.4. Regression Results: Tax Revenue and Non-Tax Revenue 215

Table 7.5. Regression Results: Shortlisted Tax Revenue Subcategories 217

Table 7.6. Regression Results: Shortlisted Non-Tax Revenue Subcategories 219

Table 7.7. Regression Results: Shortlisted Expenditure Subcategories 221

Table 7.8. Regression Results: Gross Domestic Product 225

Table 8.1. Illustrative Categories of Climate Change Expenditures and Examples in Each Category 235

Table 8.2. Legal Frameworks for Climate Change Budget Tracking in Asian Development Bank Developing Member Countries 241

Table 8.3. Climate Change Budget Tracking in Non-Developing Member Countries 242

Table 9.1. Classification of Industrial Emissions by Sector 270

Table 9.2. Carbon Tax Simulation Scenarios 273

Table 9.3. Summary Statistics 275

Table 9.4. Baseline Carbon Tax Simulation Results 282

Table 9.5. Sensitivity Analysis of the Carbon Tax Simulation Results 283

Table 10.1. Major Air Pollutants: Sources and Health/Environmental Impacts 299

Table 10.2. Variable Descriptions and Sources 301

Table 10.3. Summary Statistics for Key Variables 303

Table 10.4. Local Environmental Spending Growth on Local Emission Growth 307

Table 10.5. Heterogeneity Analysis 308

Table 10.6. Lagged Environmental Spending 310

Table 10.7. Environmental Spending on Different Pollutants 312

Table 11.1. Data Sources for Global Panel Regression Analysis 329

Table 11.2. Fiscal Dimensions for Climate Action 330

Table 11.3. Descriptive Statistics 334

Table 11.4. Regression Results 338

Table 11.5. Endogeneity Check - Original vs Lagged Specifications Coefficients 340

Boxes 11

Box 1. Choosing the Right Term 232

Box 12.1. The Tuban Waste Heat Recovery Project 352

Box 12.2. The Prey Lang REDD+ Project under the Joint Crediting Mechanism 363

Table A4.1. Developing Asia and the Pacific Gross Debt-to-GDP Ratio 117

Table A4.2. Annual Interest Expense as a Percentage of Government Revenue in Developing Asia and the Pacific 118

Table A4.3. Developing Asia and the Pacific Debt Service and Climate Finance Needs (2024-2030) 119

Table A4.4. Asia and the Pacific Debt Restructurings by Year and Creditor Group 120

Table A10.1. Reverse Causality Test 322

Table A10.2. Placebo Test 323