Office of Management and Budget

“ Generally, the assessments do not attempt to fully represent the potential for adaptation or policy changes to attenuate fiscal impacts. For example, the Federal facilities assessment does not examine the potential for investments in protective coastal infrastructure to guard against the risk of inundation from sea level rise. The crop insurance assessment assumes farmers will shift crop rotations to maintain profitability in a changing climate, but does not examine the potential for technological advancements to bolster crop resilience to impacts like drought. ”

“ 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. ”

“ Climate impacts affecting the nation’s food, water, air quality, weather, and built and natural environments endanger the health of the American people and weigh on Federal health care programs. An increase in wildland fire frequency and intensity will place further strain on Federal fire suppression resources. Climate change shocks and stressors worldwide pose global security risks and affect resource needs for defense operations and infrastructure. Wide-ranging impacts will impede economic production and diminish Federal revenue. ”

“ One simple approach to the first assumption—the U.S. share of global losses from climate change—is to assume that this share would be approximately equivalent to the U.S. share of global GDP (~22 percent of nominal global GDP in 2015) . While the U.S. economy is growing faster than most other advanced economies, the U.S. share of global GDP is declining gradually over time, a trend expected to continue (IMF, 2016) . ”

“ For example, the estimates do not account for important factors that remain difficult to quantify in physical terms and are inherently difficult to monetize, such as biodiversity loss, ocean acidification, changes in weather related to changes in ocean circulation, increased severity of certain extreme events, tipping points associated with non-linear changes in the climate, and heightened political instability as a result of climate impacts. In addition, current models factor in economic damages over time but treat the rate of economic growth as if it is unaffected by climate change. ”

“ While the correlation between economic growth and emissions has been weakening for years, recent evidence suggests that a sustained decoupling is possible. And delaying climate action only increases the costs associated with emissions-reducing measures because each year of delay means more damages from climate change, and also more stringent mitigation measures to take action in a shorter timeframe. ”

“ 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. ”

“ By 2100, tens of thousands to hundreds of thousands of additional Americans could suffer from illnesses due to the effects of climate change on air quality, requiring billions of dollars in additional Federal health care spending each year. This is just a small portion of the total fiscal risk posed by the health impacts of climate change. ”

“ Climate change is one of several factors that will affect the pattern, extent, and cost of wildland fire in the United States over the course of this century, and results suggest that, all else equal, the impact of climate change could double Federal fire suppression expenditures by mid-century and triple them by late-century, relative to historical average expenditures. ”

“ The impacts of climate change will also affect the Federal balance sheet. For example, an increase in the frequency of catastrophic storms will require more disaster relief spending and flood insurance payouts. Rising seas and heavy rainfall events will prompt investments to protect, repair, and relocate Federal facilities. Changing weather patterns and extreme weather events will affect American farmers and the Federal programs that support their risk management. ”

“ Climate change could affect the Federal Government’s crop insurance subsidy costs in a number of ways—most clearly by increasing the riskiness of crop production due to the impacts of shifting weather patterns and climate disruptions on yield, or the impacts of climate-related production challenges at home and abroad on crop price volatility. ”

“ First, while average maximum temperature is a reasonable proxy for many of the effects of climate change on fire, it may not capture the full impact of climate change. In particular, it may represent increased incidence of temperature extremes fairly well, but may only partly capture increases in prolonged high-temperature periods and drought expected to occur with climate change. For example, fire season length, while related to temperature, may also increase due to other climate change phenomena, and this could affect expenditures in ways not captured by this analysis. ”

“ In order to identify the full breadth of Federal fiscal risk related to climate change and health, more work is needed by climate scientists, epidemiologists, and others to quantify potential morbidity outcomes from the broad set of climate change health effects pathways. ”

“ However, the mid-century estimates likely understate the full fiscal burden compared to current conditions by a wide margin, as mitigation avoids roughly less than half of the increases in population-weighted annual PM2.5 and ozone concentrations that would occur by 2050 due to unmitigated climate change. The estimated mean effect in mid-century is nearly $600 million each year, with a range of $21 million to $1.5 billion, they equivalent of approximately $100 million per year ($10-$700 million) in today’s economy. ”

“ 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. ”

“ 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. ”

“ First, to maintain expected profits despite shifting climate conditions, the land allocation model predicts that risk-neutral producers will adapt in some cases by expanding acreage into higher risk areas that produce a higher expected return under climate change but also have higher premium rates per dollar of revenue insured. ”

“ 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. [7] 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. ”

“ For example, keeping global temperature rise well below 2 degrees Celsius relative to pre-industrial levels, as reflected in the Paris Agreement, is likely to significantly reduce annual economic losses and U.S. Federal revenue losses from climate change by mid- and late-century, relative to more significant temperature increases. Similarly, as detailed in this report, mitigation would reduce by half the increase in crop insurance program costs due to climate change. ”

“ In many cases, however, an individual flood event or the presence of flood risk may prompt less costly investments in protective infrastructure and repairs. The Federal Flood Risk Management Standard requires Federal agencies to consider current and future risk when rebuilding structures that have been damaged in a floodplain. Some protective investments may require one-time expenditures; others may occur and even increase over time as flood risk intensifies. ”

“ In particular, local flood impacts from climate change can be difficult to project due to the challenges of downscaling global change models to the local level. In addition, while there is high confidence that sea levels have already risen and will continue to rise over this century and beyond, the future rate of sea level rise remains difficult to predict. ”

“ 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. ”

“ While scientists continue to refine projections, it is clear that climate change will continue and its damaging impacts will intensify without considerable action to reduce GHG emissions and to respond with adaptive measures. Even with significant near-term emissions reductions, dealing with near- and mid-term impacts due to past and current emissions will still pose challenges. ”

“ Hundreds of billions of dollars of Federal assets nationwide face flood risk today—and tens of billions of dollars of coastal assets could be inundated or severely affected by sea level rise by the end of this century. Depicted above, from left to right, is Naval Air Station Key West at typical high tide today, with 2 feet of sea level rise, and with 4 feet of sea level rise. Green represents low-lying but hydrologically unconnected areas. Blue represents areas inundated at high tide. ”

“ In addition, estimates of fiscal burden attributed to modeled health outcomes may be sensitive to several economic and policy assumptions such as Medicare enrollment growth rates and health care cost growth. ”

“ For example, Americans may migrate to areas of the country with cleaner air, install air conditioning in greater numbers, or make greater efforts to stay indoors when air quality is poor.
The model also does not capture the effects of climate-related increases in severe wildfire on PM2.5 and ozone formation, morbidity outcomes like acute bronchitis that do not result in hospitalization but may still lead to significant health care costs, the effects of climate-related changes in airborne allergens on allergic disease, or changes in health care costs associated with premature mortality. ”

“ Some effects may be positive—higher levels of carbon dioxide in the atmosphere tend to increase plant growth (so-called “CO2 fertilization”) and water-use efficiency. However, negative effects from increased extreme heat and drought, more intense precipitation and soil erosion, growing stress from disease and pests, shifting soil moisture and water availability for irrigation, and higher concentrations of ozone are generally expected to outweigh positive effects, reducing yields and increasing uncertainty for producers (Melillo et al., 2014; Marshall et al., 2015) . ”

“ Revenue ImpactsRevenue Impacts 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. ”

“ Second, the models do not capture changes in global crop prices due to climate-related events outside of the United States. For example, a decline in wheat production abroad due to rising temperatures could put upward pressure on global wheat prices, increasing the value of the insured wheat crop and associated crop insurance premiums in the United States. ”

“ The Fiscal Case for Climate ActionThe Fiscal Case for Climate Action Principled fiscal responsibility clearly calls for smart investments today that can avoid significant costs in the future. The evidence underscores the opportunity to significantly reduce costs by mitigating global GHG emissions and adapting to climate change. ”

“ Climate Change and Crop InsuranceClimate Change and Crop Insurance Climate change is already affecting agricultural production and negative impacts are, on average, expected to grow more severe over the course of this century. ”

“ In the United States, GDP has grown faster than most major advanced economies since 2010 (11 percent) while U.S. energy-related CO2 emissions have fallen by almost 6 percent, leading to the first sustained period on record where GDP grew and emissions fell. ”