## 1. Emissions Profile and Trajectory ## Source details **Canonical URL:** [1. Emissions Profile and Trajectory](https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026032.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2026/english/sipea2026032.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2026/english/sipea2026032.pdf.json) --- ### Key findings and bottom line - Preliminary estimate suggests spending needs of about 3.5 percent of GDP annually by 2050 from aging, climate, and security pressures. - Liechtenstein has maintained consistent surpluses over the past decade of approximately the same magnitude, implying scope to accommodate these challenges. - Accounting explicitly for long-term spending pressures through costing, independent evaluation, and regular sustainability assessments would enhance transparency, sustainability, resource allocation efficiency, and credibility. ### Methodology (summary of approach) - Spending pressures defined as the deviation of projected expenditure from baseline levels (baselines set at 2023 levels in percent of GDP for pensions and security; climate baseline incorporates investments already underway). - Climate costing uses a bottom-up sectoral framework integrated with a Marginal Abatement Cost Curve (MACC) optimization following Kesicki and Ekins (2012) and Vogt-Schilb and Hallegatte (2014). - Six analytical steps for climate: emissions baseline (IPCC 2006 classification; global warming potentials from IPCC Fifth Assessment Report), abatement gap calculation against NDC targets, mitigation measures identification, cost-effectiveness ranking, pathway optimization, and financing structure identification. - Pension projections use a cohort-component demographic model with UN World Population Prospects (2024 revision, medium-fertility variant) calibrated to recent demographics; replacement rate applies average pension-to-GDP-per-capita ratios from 2018–23. - Security projections combine policy analysis and cross-country benchmarking to translate qualitative commitments into quantitative expenditure estimates. ### Emissions profile (2023 and trajectory) - Total emissions have fallen by 27 percent from 1990 levels. - Per capita emissions in 2023: approximately 4.2 tCO₂eq (EU average: 6.8 tCO₂eq). - Forests and managed land sequester approximately 7.3 ktCO₂e annually (LULUCF excluded from NDC targets). - Energy sector share of total emissions in 2023: 79.8 percent (8 ppts lower than 1990). - Residential and commercial heating: 33.2 percent of total emissions. - Road transport: 32.3 percent of total emissions. - Together heating and road transport account for 65 percent of energy-related emissions. - Non-energy sectors: - Agriculture: 14.5 percent of total emissions (driven by enteric fermentation). - Industrial Processes and Product Use (IPPU): 4.7 percent (dominated by fluorinated gas substitution). - Waste: 1.0 percent. ### NDC targets and abatement requirements - Second NDC targets: 55 percent reduction by 2030, 68 percent by 2035, and net-zero by 2050 relative to 1990. - Total emissions and required abatement (Kilotons of Carbon Dioxide Equivalent, ktCO₂eq): - Years: 1990 | 2022 | 2030 | 2035 | 2050 - Total emissions (ktCO₂e): 229.0 | 165.5 | 103.1 | 73.3 | 0.0 - Reduction vs 1990 (percent): — | -28-55-68-100 - Required abatement (ktCO₂e): — | — | 62.4 | 92.2 | 165.5 - Staff analysis: - With Measures (WM) scenario projects only a 44–45 percent total reduction by 2035, leaving gaps of 10 and 22 ppts. relative to the 2030 and 2035 targets respectively. - With Additional Measures (WAM) scenario reaches 57–58 percent by 2035, still short of 68 percent. ### MACC results (cost-effectiveness ranking) - The first 62 ktCO₂e of abatement shows negative net cost (averaging -CHF 85 per ton); remaining abatement requires positive investment (averaging CHF 120 per ton). - Cost-effectiveness ranking (MACC in CHF/ktCO2 and abatement in ktCO2): - Building Insulation | -150 | 18 - Electric Vehicles | -80 | 15 - Heat Pumps | -50 | 12 - Industrial Efficiency | -30 | 8 - Solar PV | +20 | 5 - Agriculture Measures | +50 | 3 - Buildings and transport identified as the most cost-effective abatement opportunities; building insulation, electric vehicles, heat pumps, and industrial efficiency produce lifetime operational savings exceeding upfront capital costs. ### Climate investment totals, sectoral breakdown, and phasing - Total green transition investment: around 45 percent of current GDP through 2050. - Mitigation: 40 percent of GDP (88 percent of the total). - Adaptation: 5 percent of GDP (12 percent of the total). - Sectoral mitigation shares (percent of GDP): - Energy: 20 percent of GDP. - Buildings: 9 percent of GDP. - Transport: 7 percent of GDP. - Industry: 4 percent of GDP. - Agriculture and waste: 1 percent of GDP. - Adaptation composition: - Flood and water management: 3 percent of GDP (50 percent of adaptation costs). - Infrastructure resilience: 1 percent of GDP (25 percent of adaptation costs). - Ecosystem protection: 16 percent of adaptation costs. - Emergency preparedness: 9 percent of adaptation costs. - Aggregate pace and annual investment: - Required pace: around CHF 129 million per year (approximately 1.7 percent of cumulative GDP over the 26-year transition period). - Comparison: broadly in line with Switzerland's climate strategy and the 1–2 percent of GDP per annum envisaged under the EU Green Deal. ### Climate financing structure and distributional presentation - Financing responsibilities (as presented): - Private sector could account for 29 percent of GDP through heat pumps, building insulation, and electric vehicles. - Public sector could finance 15 percent of GDP, concentrated in infrastructure investment, subsidies for building retrofits and heating system conversions, and public transport electrification. - International carbon credit offsets (ITMOs) account for 1 percent of GDP (residual emissions). - Alternative presentation from figure labels: - Public Sector: 32% - Private Sector: 65% - ITMO Offsets: 3% - Timing/phasing: - Investment is front-loaded: - 2025–30: 42.4 percent of total investment. - 2031–35: 28.7 percent. - 2036–50: 28.9 percent. - Public expenditure is concentrated in the near term to meet 2030 targets. ### Risks from delay and execution - Closing the 2030 gap requires annual reductions at three times the pace achieved over the past decade during 2023–2030, implying significant execution risk. - A five-year delay would require accelerating the annual abatement rate by approximately 40 percent to achieve the 2030 target, compressing investment and raising aggregate financing requirements. - Delays erode negative-cost opportunities (e.g., building retrofits and heat pumps) and constrain the use of ITMOs. ### Policy implications and recommendations (climate and fiscal integration) - Prioritize lowest-cost mitigation measures (building retrofits, electric vehicles, heat pumps, industrial efficiency) in early phases to capture negative-cost opportunities. - Front-load public investment for foundational infrastructure—renewable energy systems, building retrofit programs, and transport electrification—while mobilizing private finance through carbon pricing, standards, and market instruments. - Systematically integrate climate spending into medium-term budget frameworks to manage near-term public expenditure concentration and avoid crowding out competing priorities. - Costing and independent evaluation of long-term pressures, with regular sustainability assessments, to inform fiscal policy, enhance transparency, and support intergenerational equity. ### Pension and demographic trends - Population dynamics: - Population increased approximately 25 percent during 2000–24, driven primarily by net migration consistently outpacing natural population change. - Under the trend scenario, population projected to increase by 7 percent by 2030 and by a further 8 percent by 2050. - Ageing: - Overall older-dependency share projected from 33.3 percent in 2023 to 51 percent in 2050. - The 65+ cohort projected to increase by 7.7 percentage points to 27.8 percent. - The 80+ cohort projected to increase by 6.1 percentage points to 11 percent. - Large share of commuters in the labor market implies net inflow growth is a key contributor to the potential Pillar I fund-to-expenditure ratio trajectory. ### Pension spending projections and assumptions - Method: Impact assessed using benefit and coverage ratios from projections of age dependency ratios and labor force participation rates (Clements and others, 2015). - Actuarial assumptions: 2 percent nominal wage growth and 1 percent inflation. - Proxy replacement rate for Pillar I pensions: declines from a peak of 37 percent in 2011 to 20 percent in 2050. - Labor force participation rates and output per worker are treated as endogenous. - Pension spending pressures projected to increase by 1.5 percent of GDP annually, consistent with trends in advanced economies. ### Security spending pressures and baseline scenario - Context: Liechtenstein has no army; security spending pressures focus on cybersecurity and police modernization. - Historical spending: Outlays on security represent 3–4 percent of total government spending and averaged 1 percent of GDP during 2013–23. - Baseline scenario projection: - Security spending increases from 1.0 to 1.3 percent of GDP. - Drivers: expansion of cybersecurity capabilities for law enforcement and government infrastructure, enhanced border control technology, and modernization of police equipment. - Implications: enhanced police force with advanced technology, robust cybersecurity infrastructure, improved intelligence sharing, and expanded emergency response. ### Long-term spending needs (2050) — components and totals - Liechtenstein faces long-term fiscal pressures estimated at 3½ percent of GDP annually by 2050. - Breakdown of spending pressures in 2050 (Percent of GDP): - Pension spending: 1.5 - Security spending: 0.3 - Climate mitigation and adaptation: 1.7 - Total spending pressures: 3.5 ### Fiscal position and policy framework options - Fiscal position: Consistent surpluses of 3 percent of GDP or more, virtually zero public debt, and substantial net public assets—provides a solid foundation to address spending pressures without threatening fiscal sustainability. - Options for accounting for long-term spending pressures: - A comprehensive assessment of long-term fiscal pressures with regular publication of long-term forecasts under different scenarios. - Publication of annual fiscal sustainability reports with medium- and long-term forecasts of public finances, including sensitivity analyses to changes in key demographic, macroeconomic, and other relevant assumptions. - Automatic adjustment mechanisms with built-in prudency factors to help address uncertainty while maintaining the credibility of the multiannual framework. - Enhanced data and institutional frameworks, including more detailed actuarial projections for pensions and health care assessing the fiscal effect of legislative reforms. - Consideration of establishing an independent fiscal council to conduct independent evaluations of long-term spending pressures once macroeconomic and fiscal data are improved and sufficient capacity exists. ### Conclusion and policy implications - Aggregate assessment: Demographic, security, and climate transition spending pressures could reach 3½ percent of GDP annually by 2050. - Fiscal capacity: Liechtenstein's strong fiscal position—low public debt, substantial net assets, and prudent budgetary management—provides a solid foundation for addressing these challenges. - Timing and policy advice: - The gradual materialization of spending pressures affords time for implementing reforms and mobilizing resources. - Action should begin promptly—particularly in the climate area—and be maintained across political cycles. - Further assessment and near-, medium- and long-term budget planning are needed. *Source: IMF Staff analysis in "Long-Term Spending Pressures" chapter for the Principality of Liechtenstein.* ### 1. Emissions Profile and Trajectory ______________________________________________________ 5 ### 1. Emissions Profile and Trajectory ### Key findings and bottom line - Preliminary estimate suggests spending needs of about 3.5 percent of GDP annually by 2050 from aging, climate, and security pressures. - Liechtenstein has maintained consistent surpluses over the past decade of approximately the same magnitude, implying scope to accommodate these challenges. - Accounting explicitly for long-term spending pressures through costing, independent evaluation, and regular sustainability assessments would enhance transparency, sustainability, resource allocation efficiency, and credibility. ### Methodology (summary of approach) - Spending pressures defined as the deviation of projected expenditure from baseline levels (baselines set at 2023 levels in percent of GDP for pensions and security; climate baseline incorporates investments already underway). - Climate costing uses a bottom-up sectoral framework integrated with a Marginal Abatement Cost Curve (MACC) optimization following Kesicki and Ekins (2012) and Vogt-Schilb and Hallegatte (2014). - Six analytical steps for climate: emissions baseline (IPCC 2006 classification; global warming potentials from IPCC Fifth Assessment Report), abatement gap calculation against NDC targets, mitigation measures identification, cost-effectiveness ranking, pathway optimization, and financing structure identification. - Pension projections use a cohort-component demographic model with UN World Population Prospects (2024 revision, medium-fertility variant) calibrated to recent demographics; replacement rate applies average pension-to-GDP-per-capita ratios from 2018–23. - Security projections combine policy analysis and cross-country benchmarking to translate qualitative commitments into quantitative expenditure estimates. ### Emissions profile (2023 and trajectory) - Total emissions have fallen by 27 percent from 1990 levels. - Per capita emissions in 2023: approximately 4.2 tCO₂eq (EU average: 6.8 tCO₂eq). - Forests and managed land sequester approximately 7.3 ktCO₂e annually (LULUCF excluded from NDC targets). - Energy sector share of total emissions in 2023: 79.8 percent (8 ppts lower than 1990). - Residential and commercial heating: 33.2 percent of total emissions. - Road transport: 32.3 percent of total emissions. - Together heating and road transport account for 65 percent of energy-related emissions. - Non-energy sectors: - Agriculture: 14.5 percent of total emissions (driven by enteric fermentation). - Industrial Processes and Product Use (IPPU): 4.7 percent (dominated by fluorinated gas substitution). - Waste: 1.0 percent. ### NDC targets and abatement requirements - Second NDC targets: 55 percent reduction by 2030, 68 percent by 2035, and net-zero by 2050 relative to 1990. - Table of total emissions and required abatement (Kilotons of Carbon Dioxide Equivalent, ktCO₂eq): - Years: 1990 | 2022 | 2030 | 2035 | 2050 - Total emissions (ktCO₂e): 229.0 | 165.5 | 103.1 | 73.3 | 0.0 - Reduction vs 1990 (percent): — | -28-55-68-100 - Required abatement (ktCO₂e): — | — | 62.4 | 92.2 | 165.5 - Staff analysis: With Measures (WM) scenario projects only a 44–45 percent total reduction by 2035, leaving gaps of 10 and 22 ppts. relative to the 2030 and 2035 targets respectively; With Additional Measures (WAM) scenario reaches 57–58 percent by 2035, still short of 68 percent. ### MACC results (cost-effectiveness ranking) - The first 62 ktCO₂e of abatement shows negative net cost (averaging -CHF 85 per ton); remaining abatement requires positive investment (averaging CHF 120 per ton). - Table: Rank | Measure | MACC (CHF/ktCO2) | Abatement (ktCO2) - 1 | Building Insulation | -150 | 18 - 2 | Electric Vehicles | -80 | 15 - 3 | Heat Pumps | -50 | 12 - 4 | Industrial Efficiency | -30 | 8 - 5 | Solar PV | +20 | 5 - 6 | Agriculture Measures | +50 | 3 - Buildings and transport identified as the most cost-effective abatement opportunities; building insulation, electric vehicles, heat pumps, and industrial efficiency produce lifetime operational savings exceeding upfront capital costs. ### Climate investment totals, sectoral breakdown, and phasing - Total green transition investment: around 45 percent of current GDP through 2050. - Mitigation: 40 percent of GDP (88 percent of the total). - Adaptation: 5 percent of GDP (12 percent of the total). - Sectoral mitigation shares (percent of GDP): - Energy: 20 percent of GDP. - Buildings: 9 percent of GDP. - Transport: 7 percent of GDP. - Industry: 4 percent of GDP. - Agriculture and waste: 1 percent of GDP. - Adaptation composition: - Flood and water management: 3 percent of GDP (50 percent of adaptation costs). - Infrastructure resilience: 1 percent of GDP (25 percent of adaptation costs). - Ecosystem protection: 16 percent of adaptation costs. - Emergency preparedness: 9 percent of adaptation costs. - Aggregate pace and annual investment: - Required pace: around CHF 129 million per year (approximately 1.7 percent of cumulative GDP over the 26-year transition period). - Comparison: broadly in line with Switzerland's climate strategy and the 1–2 percent of GDP per annum envisaged under the EU Green Deal. ### Climate financing structure and distributional presentation - Financing responsibilities (as presented): - Private sector could account for 29 percent of GDP through heat pumps, building insulation, and electric vehicles. - Public sector could finance 15 percent of GDP, concentrated in infrastructure investment, subsidies for building retrofits and heating system conversions, and public transport electrification. - International carbon credit offsets (ITMOs) account for 1 percent of GDP (residual emissions). - Alternative presentation from figure labels: - Public Sector: 32% - Private Sector: 65% - ITMO Offsets: 3% - Timing/phasing: - Investment is front-loaded: - 2025–30: 42.4 percent of total investment. - 2031–35: 28.7 percent. - 2036–50: 28.9 percent. - Public expenditure is concentrated in the near term to meet 2030 targets. ### Risks from delay and execution - Closing the 2030 gap requires annual reductions at three times the pace achieved over the past decade during 2023–2030, implying significant execution risk. - A five-year delay would require accelerating the annual abatement rate by approximately 40 percent to achieve the 2030 target, compressing investment and raising aggregate financing requirements. - Delays erode negative-cost opportunities (e.g., building retrofits and heat pumps) and constrain the use of ITMOs. ### Policy implications and recommendations (climate and fiscal integration) - Prioritize lowest-cost mitigation measures (building retrofits, electric vehicles, heat pumps, industrial efficiency) in early phases to capture negative-cost opportunities. - Front-load public investment for foundational infrastructure—renewable energy systems, building retrofit programs, and transport electrification—while mobilizing private finance through carbon pricing, standards, and market instruments. - Systematically integrate climate spending into medium-term budget frameworks to manage near-term public expenditure concentration and avoid crowding out competing priorities. - Costing and independent evaluation of long-term pressures, with regular sustainability assessments, to inform fiscal policy, enhance transparency, and support intergenerational equity. ### Pension and demographic trends (summary of material provided) - Population dynamics: - Population increased approximately 25 percent during 2000–24, driven primarily by net migration consistently outpacing natural population change. - Under the trend scenario, population projected to increase by 7 percent by 2030 and by a further 8 percent by 2050. - Ageing: - The speed of population ageing is advancing; the old-age dependency ratio (people 65+ per people 15–64) is expected to increase (text truncated before numeric detail). *Source: "Long-Term Spending Pressures in Liechtenstein," March 5, 2026 — IMF Selected Issues Paper (chapter: 1. Emissions Profile and Trajectory).* ### 33.3 percent in 2023 to 51 percent in 2050. The 65+ and 80+ cohorts are projected to increase b ### 33.3 percent in 2023 to 51 percent in 2050. The 65+ and 80+ cohorts are projected to increase b ### Population trends and drivers - Net migration has been the dominant driver of Liechtenstein's population growth since 1990, consistently outpacing natural change. - Migration dynamics will be the primary driver determining whether Liechtenstein's population grows modestly or substantially through 2050. - Contribution and projection sources: United Nations, World Population Prospects and IMF Staff Calculations. - Specific cohort changes: - Overall older-dependency share projected from 33.3 percent in 2023 to 51 percent in 2050. - The 65+ cohort projected to increase by 7.7 percentage points to 27.8 percent. - The 80+ cohort projected to increase by 6.1 percentage points to 11 percent. - Large share of commuters in the labor market implies net inflow growth is a key contributor to the potential Pillar I fund-to-expenditure ratio trajectory. ### Pension spending projections and assumptions - Method: Impact assessed using benefit and coverage ratios from projections of age dependency ratios and labor force participation rates (Clements and others, 2015). - Actuarial assumptions: 2 percent nominal wage growth and 1 percent inflation. - Proxy replacement rate for Pillar I pensions: declines from a peak of 37 percent in 2011 to 20 percent in 2050. - Labor force participation rates and output per worker are treated as endogenous. - Pension spending pressures projected to increase by 1.5 percent of GDP annually, consistent with trends in advanced economies. ### Security spending pressures and baseline scenario - Context: Liechtenstein has no army; security spending pressures focus on cybersecurity and police modernization. - Historical spending: Outlays on security represent 3–4 percent of total government spending and averaged 1 percent of GDP during 2013–23. - Regional context: Across Europe, countries are increasing defense spending, with a number increasing the 2-year moving average of defense outlays as a share of GDP by at least 1 percentage point (Eble and others 2025). - Baseline scenario projection: - Security spending increases from 1.0 to 1.3 percent of GDP. - Drivers: expansion of cybersecurity capabilities for law enforcement and government infrastructure, enhanced border control technology, and modernization of police equipment. - Implications: enhanced police force with advanced technology, robust cybersecurity infrastructure, improved intelligence sharing, and expanded emergency response. ### Long-term spending needs (2050) — components and totals - Liechtenstein faces long-term fiscal pressures estimated at 3½ percent of GDP annually by 2050. - Breakdown of spending pressures in 2050 (Percent of GDP): - Pension spending: 1.5 - Security spending: 0.3 - Climate mitigation and adaptation: 1.7 - Total spending pressures: 3.5 - Source of table figures: IMF Staff Calculations. ### Fiscal position and policy framework options - Fiscal position: Consistent surpluses of 3 percent of GDP or more, virtually zero public debt, and substantial net public assets—provides a solid foundation to address spending pressures without threatening fiscal sustainability. - Options for accounting for long-term spending pressures: - A comprehensive assessment of long-term fiscal pressures with regular publication of long-term forecasts under different scenarios. - Publication of annual fiscal sustainability reports with medium- and long-term forecasts of public finances, including sensitivity analyses to changes in key demographic, macroeconomic, and other relevant assumptions (Debrun and others 2013; Curristine and others 2024). - Automatic adjustment mechanisms with built-in prudency factors to help address uncertainty while maintaining the credibility of the multiannual framework (Eble and others 2025). - Enhanced data and institutional frameworks, including more detailed actuarial projections for pensions and health care assessing the fiscal effect of legislative reforms (Caselli and others 2022; Eble and others 2025). - Consideration of establishing an independent fiscal council to conduct independent evaluations of long-term spending pressures once macroeconomic and fiscal data are improved and sufficient capacity exists (Beetsma and Debrun 2016; Debrun and others 2013). ### Conclusion and policy implications - Aggregate assessment: Demographic, security, and climate transition spending pressures could reach 3½ percent of GDP annually by 2050. - Fiscal capacity: Liechtenstein's strong fiscal position—low public debt, substantial net assets, and prudent budgetary management—provides a solid foundation for addressing these challenges. - Timing and policy advice: - The gradual materialization of spending pressures affords time for implementing reforms and mobilizing resources. - Action should begin promptly—particularly in the climate area—and be maintained across political cycles. - Further assessment and near-, medium- and long-term budget planning are needed. *Source: IMF Staff analysis in "Long-Term Spending Pressures" chapter for the Principality of Liechtenstein.* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026032.pdf_