South Caucasus - Armenia Green Fiscal Report : Fiscal Policy for the Green Transition in Armenia

Overview & Synopsis

Armenia faces mounting economic, fiscal, and climate pressures, including slowing productivity, labor market vulnerabilities, and rising exposure to climate shocks such as droughts, heat stress, and infrastructure risks. At the same time, tightening fiscal space and growing expenditure needs limit traditional revenue options. In this context, environmental taxation and carbon pricing offer a pathway to modernize fiscal policy by expanding the tax base, mobilizing revenues, reducing energy import dependence, and supporting job creation while aligning with global mechanisms such as the EU Carbon Border Adjustment Mechanism. Currently, Armenia’s environmental taxation remains narrow and low compared to international peers, with limited carbon pricing across sectors. The report proposes practical reforms, including recalibrating fuel excises based on carbon content, expanding taxation to natural gas, and introducing complementary instruments such as feebates and green investments. Simulations suggest that an ambitious green fiscal package could generate significant revenues, enhance growth, reduce emissions, and support employment through targeted revenue recycling.