CLIMATE CHANGE: THE FISCAL RISKS FACING THE FEDERAL GOVERNMENT
Key Limitations and Uncertainties
Economic damages attributed to climate change are sensitive to assumptions and limitations in underlying global change models and damage simulations. Uncertainty in hurricane frequency modeling in particular is evident in the spread of CBO’s “likely range” of damage estimates. In addition, note that CBO’s projections only extend to 2075, while global change models show that sea level rise could increase substantially in the final quarter of the century, depending in part on future emissions. The study scope was also limited to hurricane damage, and does not address non-hurricane flood damage in coastal areas (e.g., nuisance flooding at high tide due to sea level rise) or inland areas.
Another significant factor creating uncertainty is the extent to which coastal communities will adapt to growing risks. Several assessments have demonstrated that adaptation mechanisms like protective built and natural infrastructure as well as prudent development patterns can significantly reduce increases in storm damages due to climate change. The CBO study incorporates some representation of adaptation, in particular by generally assuming that damages increase less than proportionately with increases in population and per capita income, as well as by assuming that population and per capita income growth would slow in heavily affected counties. CBO found that expected damages could be 20 percent higher or lower depending on the extent to which hurricane damage is assumed to increase with population and income growth. This highlights the sensitivity of damages to the extent of adaptive response, but also suggests that the order of magnitude of expected damages may not change.
Estimates of fiscal burden attributed to expected hurricane damages depend entirely on the extent to which Federal disaster relief is assumed to be appropriated in the wake of catastrophic storms. The CBO study applies the average ratio of Federal relief to total economic damages for major storms since Hurricane Katrina in 2005. The Federal cost share may grow or shrink over time due to political and other factors that are difficult to predict. However, the share has tended to grow over time (CBO, 2016).
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