CLIMATE CHANGE: THE FISCAL RISKS FACING THE FEDERAL GOVERNMENT
Estimated costs reach into the tens of billions per year within just a few decades (2040-2060) and grow into late century (2060-2100). There is also evidence to suggest the costs incurred over the last decade related to extreme weather and fire have already been exacerbated by climate change. Climate-related costs in these areas also appear likely to vary significantly from year to year, signaling the prospect of budgeting and other planning challenges and greater reliance on emergency supplemental appropriations. Even costs that represent a small portion of the Federal Budget can be severely challenging for individual agencies without responsive adjustments to Congressional appropriations.
In addition to these four program areas, OMB identified significant flood risks to Federal property after reviewing just a sample of the Federal inventory—including $83 billion in Federal assets located in the currently defined 100-year floodplain, $23 billion in assets located in the currently defined 500-year floodplain, and $62 billion in coastal assets that would be threatened by inundation or otherwise severely affected at high tide under a 6 foot sea level rise scenario—but has not estimated the likely costs associated with these liabilities over the coming decades.
Although the combined weight of the quantified mean expenditure estimates in the assessments in this report reaches into the tens of billions to hundreds of billions per year by late-century, this is only a narrow window into the full fiscal risks of climate change. Fiscal impacts in several areas exposed to potentially significant climate risk are not quantified in this report due to data limitations and other challenges. Among these are health care related to vector-borne diseases and other climate change health impacts, national security, the National Flood Insurance Program (NFIP), transportation and water infrastructure, and inland Federal asset flood risk.
Revenue impacts in an unmitigated climate change scenario appear to be significant. Climate change is projected to reduce economic output in the United States and across the globe. Reduced output in the United States means lost revenue for the Federal Government. The Intergovernmental Panel on Climate Change (IPCC)’s most recent midrange projection suggests that warming of four degrees Celsius over
preindustrial levels will occur by 2100 if global emissions are allowed to continue unabated. Economists’ estimates of the economic damages (in terms of reduced consumption) from this level of warming, projected using integrated assessment models (IAMs) of the climate-economy system, range from 1 to 5 percent of global gross domestic product (GDP) each year by 2100 (Nordhaus, 2013). One of the most frequently cited economic models places the estimate of annual damages from warming of four degrees Celsius at about four percent of global GDP (Nordhaus, 2010, 2013). That same model suggests that levels of warming that might occur by mid-century would result in lower annual damages—for example, an increase in 2 degrees Celsius could cause annual damages equivalent to about 1 percent of global
- For example, according to NOAA, nearly 1 foot of sea level rise around New York City over the last century, largely due to climate change, led to greater coastal flooding in New York and the surrounding region from Superstorm Sandy than would have occurred a century ago (Rosenzweig, 2012). Superstorm Sandy prompted more than $49 billion in appropriations to help communities rebuild. Wildland fire suppression costs have also increased as fire seasons have grown longer and the size and severity of wildland fires have increased, in part due to climate change (USDA, 2015).
- A 2013 study conducted for the Federal Emergency Management Agency (FEMA) found that by 2100 the number of NFIP policies would increase by 80-100 percent and the average loss cost per policy would increase by 50-90 percent largely due to climate change (AECOM, 2013). However, legislative changes to the program since this study was conducted may reduce the ultimate fiscal impact of these effects over time.