CLIMATE CHANGE: THE FISCAL RISKS FACING THE FEDERAL GOVERNMENT
Risk Assessment
Based on CBO modeling of hurricane damages and associated Federal aid, the expected Federal fiscal burden attributable to the effect of climate change on expected hurricane damages is $19 billion per year by 2050 and $50 billion per year by 2075—or the equivalent in today’s economy of approximately $8.7 billion and $13.6 billion, respectively. The likely range for these estimates is $11-$31 billion in 2050 (equivalent to approximately $5.0-$14.2 billion in today’s economy) and $32-$78 billion in 2075 (equivalent to approximately $8.7-$21.2 billion in today’s economy).[1] These estimates are derived by applying the historical ratio of Federal disaster relief, as estimated by CBO, to the portion of estimated economic losses from catastrophic hurricanes across 777 counties in 22 states that is attributable to climate change assuming development will continue in coastal communities.
Note that OMB’s approach to determining the contribution of climate change to total expected damages, reflected in the figures presented above, differs from CBO’s approach. OMB’s approach assumes population and incomes in coastal communities will continue to grow as modeled by CBO, and attributes to climate change all damages that would not occur if not for climate change. CBO splits the combined effects of climate change and coastal development between the two factors in proportion to the effect of each in isolation—or 45 percent to climate change and 55 percent to coastal development.
CBO used projections by leading researchers to define the probability distribution of future sea levels and hurricane frequency, and its own projections to define distributions of future population and per capita income in coastal communities. CBO then used those distributions to simulate future hurricane damages with and without climate change using commercially developed damage functions that translate sea levels, hurricane occurrence, and property exposure into expected damage.
The sea level rise projections used in the CBO study combine potential outcomes associated with three different GHG emissions pathways—RCPs 2.6, 4.5, and 8.5. RCP 8.5 is an unmitigated climate change scenario, while RCP 4.5 is a moderate mitigation scenario and RCP 2.6 requires net-negative global emissions in the last quarter of this century. The result of combining sea level rise projections for these emissions pathways is average sea level rise in the United States between 1.4 feet and 2.8 feet by 2075 (CBO, 2016).[2]
In contrast, the 2014 NCA considered 1-4 feet to be the likely range and 6.6 feet to be an appropriate upper bound for risk-averse planning through 2100. While the difference in global sea level rise across these emissions pathways through 2050 is relatively small, more significant differences emerge in the second half of the century—up to 1.3 feet additional feet in RCP 8.5 compared to RCP 2.6 by 2100 (Kopp et al., 2014).[3]
In addition, half of the draws CBO used in its simulations of hurricane frequency were based on RCP 4.5, while half were based on RCP 8.5. Given CBO’s approach on both sea level rise and hurricane frequency, CBO’s results may be a fair reflection of the range of possible outcomes given global mitigation efforts, but as a whole underestimate the full effects that would occur in an unmitigated climate change scenario—especially in late-century. See CBO’s report for more information on its methodology.
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- ↑ The likely range reflects the middle two-thirds of CBO’s simulations.
- ↑ The extent of sea level rise at the local level varies due to vertical land motion, such as subsidence, glacial rebound, or large-scale tectonic motion.
- ↑ The 90 percent confidence intervals in 2050 are ~0.6-1.1ft above 2000 levels in RCP 2.6 and ~0.7-1.2ft in RCP 8.5, and by 2100 increase to ~1.0-2.7ft in RCP 2.6 and ~1.7-4.0ft in RCP 8.5 (Kopp et al. 2014).
