How ministries of finance can support coherent climate policy packages
This report seeks to provide Ministries of Finance (MoFs) with insights for the design and implementation of climate policy packages that combine carbon pricing and a set of other fiscal and regulatory instruments. The report focuses on climate change mitigation policies while acknowledging that they can be usefully associated with adaptation measures. We discuss the various climate actions and policies that MoFs can deploy in coordination with line ministries and provide a structured approach to defining, assessing, implementing, and evaluating climate packages that combine multiple instruments.
Since adopting the Paris Agreement in 2015, countries worldwide have implemented policies to steer their economies toward low-carbon development. The academic literature has traditionally focused on stand-alone carbon pricing to achieve progress on decarbonization. Many models and economic theory have indicated that uniform carbon prices set at sufficiently high levels could, in isolation, reduce carbon emissions at the lowest economic cost. However, in practice, most governments do not rely on stand-alone carbon pricing and the global community has been unable to agree on uniform, global carbon prices. Instead, many national ministries deploy multiple fiscal and regulatory policy instruments within their own areas of competence. This deployment often occurs incrementally and is not always coordinated.
Recent climate policy initiatives in Europe, North America, and Asia have been framed as packages, seeking to reduce carbon emissions while at the same time boosting investment, encouraging innovation, improving equity, and supporting growth. These packages mobilize carbon pricing, public investment, tax credits, and regulatory measures and experience has proven that they can be highly effective. However, ensuring the coherence of such climate packages, when line ministries intervene with their own priorities, is not an easy task. Without adequate intra-governmental cooperation, climate packages risk missing the opportunity to advance along low-carbon pathways or do so at a much higher (economic or social) cost. It is therefore essential that MoFs, with their broad oversight, develop the capacity to bring coherence to multifaceted climate actions. With robust analytical tools, MoFs can clarify trade-offs, limit incoherence, and minimize dead-weight economic losses.
Coherent packages can boost both short-term growth and long-term prosperity. Recently deployed, welldesigned packages are delivering bursts of activity in clean energy and clean industry sectors, with associated employment gains. Over time, well-coordinated and well-sequenced climate packages generate persistent co-benefits such as improved health outcomes, productivity gains, and reduced climate vulnerability. In turn, this expands the fiscal and institutional capacity for large-scale investments in long-term growth. Such virtuous feedback loops help reinforce sustainable prosperity.
MoFs have faced knowledge gaps when attempting to understand the complexity of climate policy packages, especially outside high-income countries. The results of a recent survey conducted by the Coalition of Finance Ministers for Climate Action indicated that there is “insufficient information to answer a number of pressing climate-related policy and analytical questions on a broad range of issues” (CFMCA, 2025e). In particular, there is a general shortage of available modeling approaches within MoFs and research is still in its infancy regarding the socioeconomic and environmental impact of industrial and innovation policies and S-shaped adoption patterns. Where feasible, the effectiveness of different policy instruments and policy packages in reducing emissions and their economic impacts are being assessed. This can involve macroeconomic and energy models being linked together and hybrid models being developed, to enable a better understanding of the complex effects of comprehensive policy packages. Microsimulation models are also being developed to understand the impact of climate policies across the income distribution. Despite these efforts and methods, many models do not yet capture these complex interactions, and so it remains a significant opportunity for improvement.
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