EU climate countdown: economic risks, adaptation and smart policies

• Date: 17 December 2024
• Pages: 353-375
• DOI: https://doi.org/10.1108/IJCCSM-07-2024-0121
• Published date: 17 December 2024
• Subject Matter: Public policy & environmental management,Environmental issues,Climate change
• Author: Ana-Elena Varadi,Oana-Ramona Lobont,Sorana Vatavu

EU climate countdown: economic

risks, adaptation and smart policies

Ana-Elena Varadi

Doctoral School of Economics and Business Administration,

West University of Timisoara, Timisoara, Romania, and

Oana-Ramona Lobont and Sorana Vatavu

Department of Finance, Business Information Systems and Modelling Department,

Faculty of Economics and Business Administration, West University of Timisoara,

Timisoara, Romania

Abstract

Purpose –This paper aims to analyse the impactof various climate change indicators on economic growth

while further scrutinisingthe overall eff‌iciency of environmental policies adopted at the EuropeanUnion (EU)

level. The paper considers the European Green Deal policy framework as a prism for assessing whether an

increasein environmental expenditure mitigates climatechange.

Design/methodology/approach –Given the duality of the study,this paper examines the immediate impact

of climate change on economic growthby using multiple linear regression and evaluates the effectivenessof

environmental policies through a multiple indicators multiple cause (MIMIC) Model. As the paper assesses

the policy eff‌iciencyin EU countries, this paper has used variousclimate and economic-related indicatorsfrom

all 27 EU member states for a period of 12 years (2010–2021).

Findings –The results suggest thatthe macroeconomic environment is indeed impacted by climate change

mechanisms,particularly throughindustrial activity that leadsto pollution and resourcedepletion. Furthermore,

through the MIMICmodel approach, the results displaythat environmental expenditureshave also diminished

the risksassociated with climate changeindicators, especially in reducinggreenhouse gas emissions.

Originality/value –This paper providesa clear overview of the manner in which climatechange risks affect

economic growth and, in turn, how EU countries are mitigating such risks. It proposes a traditional yet

controversial method for assessing the correlation between indicators and corresponding causes whilst also

consideringvarious indicators to explain the means through which the EU Commissionhad applied its adopted

environmentalpolicies to mitigate environmental risks.

Keywords Climate change, Macroeconomy, European Union, MIMIC model, Environmental expenditure

Paper type Research paper

© Ana-Elena Varadi, Oana-Ramona Lobont and Sorana Vatavu. Published by Emerald Publishing

Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone

may reproduce, distribute, translate and create derivative works of this article (for both commercial and

non-commercial purposes), subject to full attribution to the original publication and authors. The full terms

of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

This work was supported by a grant from the Romanian Ministry of Research, Innovation and

Digitalization, the project with the title “Economics and Policy Options for Climate Change Risk and

Global Environmental Governance”(CF 193/28.11.2022, Funding Contract no. 760078/23.05.2023),

within Romania’s National Recovery and Resilience Plan (PNRR) –Pillar III, Component C9,

Investment I8 (PNRR/2022/C9/MCID/I8) –Development of a program to attract highly specialised

human resources from abroad in research, development and innovation activities.

Economics and policy options for climate change risk and global environmental governance,

CF 193/28.11.2022; Funding Contract no. 760078/2.

International

Journal of Climate

Change Strategies

and Management

353

Received27 July 2024

Revised19 September2024

Accepted21 O ctober 2024

InternationalJournal of Climate

ChangeStrategies and

Management

Vol.17 No. 1, 2025

pp. 353-375

EmeraldPublishing Limited

1756-8692

DOI 10.1108/IJCCSM-07-2024-0121

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1756-8692.htm

1. Introduction

The main purpose of this paper is to investigate w hether climate change impacts signif‌icantly

affect the macroeconomic environment and assess the manner in which environmental policies

are effective in mitigating climate change risks. Nonetheless, in recent years, the academic

environment has shown a growing interest in environmental studies, particularly in response to

the increasing emphasis exercised by the European Commission on addressing climate change.

This heightened interest is driven by the urgent need to understand and mitigate the impacts of

climate change, which poses signif‌icant risks to various facets of society.Among these risks, the

potential effects on the macroeconomic environment are of paramount importance.

Deriving from the existing literature, we examine climate change risks and their

macroeconomic implications while also critically examining the eff‌iciency of policies adopted at

the European Union (EU) level. There are several marginal contributions to this paper. The

existing literature predominantly explores various mitigation measures to diminish the impact of

environmental shifts, aimed at enhancing quality of life. In co ntrast, our study uniquely

contributes to this f‌ield of study by examining the impact of climate change risks on the

macroeconomic environment whilst rigorously assessing the effectiveness of existing EU

environmental policies to determine if further improvem ents are required. As such, we used a

multiple linear regression analysis to assess the relationship between various climate change

indicators and economic growth. Through this quantitative approach, we seek to clarify the extent

to which changes in climate-related variables can predict variations in economic performance.

What sets our approach apart is the integration of climate science with economic

modelling, providing insights into how climate-induced risks could shape future economic

trajectories. This interdisciplinary approach underscores the necessity of incorporating

environmental considerations into economic planning and policy-making. In addition to

investigating the macroeconomicimpacts of climate change, it is equallycrucial to assess the

eff‌icacy of environmental policies already implemented. Within the framework of the

European Green Deal, numerous policies have been enacted to mitigate climate change and

promote sustainabledevelopment.

To this end, we evaluated the eff‌iciency of these environmental policies by using a multiple

indicators multiple causes (MIMIC) model to ana lyse how various forms of environmental

expenditure have inf‌luenced climate change indicators. The MIMIC model allows for examining

latent variables, providing a comprehensive understanding of the multifaceted impacts of

environmental spending. By identifying both positive and negative effects, this analysis sheds

light on which areas of expenditure are mosteffective in addressing climate change.

Our results reveal a clear and signif‌icant connection between climate change risks and

economic growth. The model demonstrated the strong predictive power of the independent

variables on the variability in gross domesticproduct (GDP) per capita growth. Notably, net

greenhouse gas emissions and f‌inal energy consumption prove a positive relationship with

GDP growth, while production in industry and cooling and heating degree days carry

negative impacts. These f‌indings highlight the complex interplay between environmental

factors and economic performance, emphasising both the economic challenges posed by

climate change and the effectiveness of environmental policies in mitigating these risks. In

addition, our MIMIC model analysis conf‌irmed that government expenditures on

environmental protectionsignif‌icantly inf‌luence climate-related indicators, offeringvaluable

insights into the effectivenessof EU climate policies.

Such analysis is critical for several reasons. First, it provides empirical evidence on the

success of current environmental policies, highlighting areas where further improvements

are needed. Second, it offers a starting point for assessing future policies, ensuring that

resources are allocated eff‌iciently to maximise positive outcomes. Finally, it reinforces the

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