France: Selected Issues

This Selected Issues paper aims to deep dive on the climate transition for France. The paper discusses macroeconomic implications, fiscal policies, and financial risks. France has taken a leadership role in global mitigation initiatives. French banks should also continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes. Revenue could be recycled through targeted cash transfers to vulnerable households and reductions in labor and/or corporate income taxes. Sectoral policies can usefully complement carbon pricing while helping balancing fiscal, economic, equity, and acceptability objectives. Transitioning to distance-based charges can help close emissions gaps, reach the sectoral carbon budget, and maintain revenue. The transition toward a low-carbon economy and the structural changes associated with it can pose important economic and financial challenges, if not well-managed and timed. A growing number of central banks and global institutions increasingly acknowledge the financial stability implications of climate transition risk.