Public spending to address the risks of the climate crisis is far below the necessary levels, according to a note by the Cyprus Fiscal Council, in view of the preparation of the 2026 Budget and the 2026–2028 Medium-Term Fiscal Framework (MTFF).
The Council consists of three members, appointed by the Council of Ministers after consultation the Parliamentary Committee on the Finances and the Budget of the House of Representatives, one of which acts as full-time chairman. Currently, the chairman is Michalis Persianis and the other two members are Marios Zachariadis and Marios Clerides.
In its most recent announcement, the Fiscal Council notes that Cyprus continues to lag in the development of infrastructure, policies, and other measures to mitigate the impacts of climate change. “The estimates of the impacts at the fiscal, macroeconomic, and social level should be a cause for concern,” it says, also pointing to a possible political risk, as Cyprus is on a path of failing to meet its obligations towards the EU.
It also stresses that the cost of inaction should be considered significantly higher, with all that this implies for public finances and the need for future tax increases or politically “bold” spending cuts.
Therefore, it recommends that national investments be significantly increased with the aim not only of more fully meeting obligations, but above all, of safeguarding the economy, society, and public finances.
Significant physical climate-related risks
The Fiscal Council warns that the country faces significant climate-related risks, particularly from physical climate impacts. While some progress is expected from proposed green taxation, especially in covering financing needs, this will not adequately address the country’s high sensitivity and exposure to climate threats, it notes. Even under moderate climate scenarios, the consequences for society, the economy, and public finances are expected to be severe, according to the Council.
Cyprus continues to lag in climate adaptation infrastructure and policies after years of underinvestment, the Council adds. The National Energy and Climate Plan (NECP) is described as "unambitious, vague, and lacking clear implementation timelines", with many targets either delayed or deteriorating. This raises the risk of non-compliance with EU obligations, exposing Cyprus not only to environmental but also political consequences, the Fiscal Council warns.
Financially, the estimated annual cost of the EU Emissions Trading System (ETS2) is €160 million, but this assumes full NECP implementation. "The cost of inaction is expected to be far higher", the Council highlights, potentially leading to tax hikes or politically difficult spending cuts.
Credit risks
The Council also points to growing concerns in credit markets, as rating agencies increasingly integrate climate risks and ESG criteria into their assessments. It cites ECB data, according to which up to 70% of Cypriot bank clients are at high risk from climate change. This could restrict access to credit, raise borrowing costs, and amplify social inequalities, it says. Rising energy, food, healthcare, and social protection costs will disproportionately affect households, threatening social cohesion, according to the Fiscal Council.
The Council calls for a substantial increase in national investment, not just to meet EU targets, but to protect the economy and society. It urges strict timelines, measurable progress indicators, better coordination among Ministries, and a shift from viewing climate expenditure as a cost to seeing it as an investment in resilience. Delays, it warns, will only multiply risks and future costs.
(Source: CNA)
