CLIMATE CHANGE: THE FISCAL RISKS FACING THE FEDERAL GOVERNMENT
outcomes related to air quality—likely a slim component of the full fiscal risk related to health care and public health. Also not captured are several likely areas of fiscal risk such as national defense, Federal assistance for transportation infrastructure maintenance, and disaster aid for climate-related events other than hurricanes that will add to the total fiscal burden of climate change. In short, the actual fiscal risks to the Federal Government are likely to be much greater than the sum of what is quantified in this preliminary assessment.
Finally, fiscal impact estimates in mid- and late-century should be viewed in light of a growing economy. The Federal Government’s ability to manage the fiscal burden of a major storm or severe drought, for example, will likely be greater decades from now than today, given that real GDP is projected to double by 2050 and quadruple by 2080. The estimates in the risk assessments that follow are presented both in real (current) dollars and GDP-adjusted dollars. The second approach conveys the estimates at their equivalent scale in today’s economy in terms of the percent of U.S. GDP that they represent. The GDP adjustment simply rescales estimated costs from the modeled year to the present based on projected real GDP growth in the intervening period, such that real dollar estimates and GDP-adjusted dollar estimates reflect the same percentage of real GDP in the modeled year and present year, respectively.
Charting a Path to a Clearer Picture of Fiscal Risks
The climate science literature continues to advance at a rapid pace, expanding our understanding of the likely physical and ecological effects of climate change. Economists have also made strides in assessing the macroeconomic impacts of climate change. More recently, the climate science literature has turned mtoward assessing impacts to particular sectors and regions, and economists are beginning to follow suit. This type of research is critical for informing decision-making by communities, businesses, and policymakers at all levels of government.
But work is needed to provide more specific and actionable information. Studies often overlook key dimensions of climate change impacts that would speak to the specific risks and tradeoffs facing decision-makers, such as those in the Federal Government, as they evaluate policy options and long-term investments and divestments. For example, while premature mortality will likely account for the overwhelming majority of economic losses from climate impacts related to health, the non-fatal and chronic health effects will impose the greatest burden for public and private health insurers. Similarly, while the impact of climate change on average agricultural yields has broad implications for global food security and the livelihoods of agricultural producers, changes in year-to-year variability in yield due to escalating risk are also an important dimension of both food security and producer profitability, and speak to fiscal impact on the Federal safety net.
In addition to capturing these dimensions of climate impacts in well-studied areas, considerable work remains in both climate science and climate economics to assess less well-studied impacts. The U.S. Global Change Research Program (USGCRP) Health and Climate Assessment (2016), for example, strengthened our understanding of health-related risks posed by climate change and also highlighted the lack of quantitative assessment in key areas like vector-borne disease and heat-related, non-fatal illness.
As the climate science and economics literatures continue to advance, further collaboration between OMB, CEA, USGCRP, and key Federal agencies will be necessary to ensure that our understanding of climate change risks facing the Federal Budget deepens, broadens, and sharpens. A key component of this effort is the NCA. In addition to the quadrennial NCA mandated under the 1990 Global Change