President Obama has said the Budget is “a roadmap to a future that embodies America’s values and aspirations.” Building and stewarding such a Budget over the long term requires a clear-eyed view of the challenges that put our aspirations at risk. No challenge poses a greater threat to future generations than climate change.
The Office of Management and Budget (OMB), in collaboration with the Council of Economic Advisers (CEA), recently embarked on an effort to assess what we can quantify today with regard to the fiscal risks posed by climate change for the Federal Government. To date, this effort has yielded two primary conclusions: first, that our current understanding of the fiscal risks of climate change is nascent, limited in scope, and subject to significant uncertainty; and second, that the evidence available thus far indicates the fiscal risks to the Federal Government could be very significant over the course of this century without ambitious action to reduce greenhouse gas emissions (GHGs) and adapt our communities to a changing climate.
This report outlines the contours of fiscal risk through five program-specific assessments: crop insurance, health care, wildfire suppression, hurricane-related disaster relief, and Federal facility flood risk. These programs were assessed because they are directly influenced by climate change, they have strong links to the Federal Budget, and quantitative scientific and economic models regarding the likely magnitude of impacts were available. This report also considers potential impacts to Federal revenues.
Climate change is already affecting communities across the United States. The most recent National Climate Assessment (NCA) clearly established the sweeping effects of climate change, many of which are already evident in the lives of Americans. Fifteen of the sixteen warmest years on record globally have occurred between 2000 and 2015, and 2015 was the warmest year on record (NOAA, 2016a). The trend is continuing in 2016, with each of the first eight months in 2016 setting a record as the warmest respective month globally in the modern temperature record, dating to 1880. August 2016 marked the 16th consecutive month that the monthly global temperature record was broken (NOAA, 2016b), while September 2016 was surpassed only by record-breaking September 2015 (NOAA, 2016c). In addition, heat waves, wildfires and some extreme weather events such as heavy rainfall, floods, and droughts have become more frequent and/or intense in recent years. 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.
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 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.
Although the presence of risk across these and other exposure points is clear, we remain in the early stages of quantifying the total likely burden for American taxpayers. In several critical areas, quantitative projections of specific climate impacts are not yet available. The projections we do have are useful in approximating the order of magnitude of potential impacts of climate change on the Federal Budget, but are still subject to significant limitations and uncertainty. As a result, because of these limitations and because other impacts are not considered in this assessment, the total costs of climate change for the Federal Government may be greatly underestimated, and other costs affecting the American people are not considered here. Despite these limitations, the accumulated evidence suggests the fiscal impacts of further unmitigated climate change could leave a significant imprint on the Federal Budget over the course of this century.
On the expenditures side of the Federal ledger, each of the five program-specific assessments conducted for this report unambiguously illustrates that climate change will raise expenditures. The table below shows estimates of recurring, annual expenditures due to climate change across four of the five program areas—totaling $34-$112 billion per year by late-century, the equivalent of $9-$28 billion per year in today’s economy.
| Billions of Real dollars (GDP-Adjusted)[2] |
Mid-Century | Late-Century | ||||
| Mean | Lo[3] | Hi[3] | Mean | Lo[3] | Hi[3] | |
| Wildland Fire Suppression |
$1.3 ($0.6) |
$0.8 ($0.4) |
$2.0 ($0.9) |
$2.3 ($0.5) |
$1.2 ($0.2) |
$5.0 ($1.0) |
| Crop Insurance[4] | -- | -- | -- | $4.2 ($1.0) |
<$0.1 (<$0.1) |
$9.3 ($2.3) |
| Air Quality-Health Care[5] | $0.6 ($0.3) |
<0.1 (<$0.1) |
$1.5 ($0.7) |
$7.7 ($1.2) |
$0.6 ($0.1) |
$19.7 ($3.2) |
| Coastal Disaster Relief | $19 ($8.7) |
$11 ($5.0) |
$31 ($14.2) |
$50 ($13.6) |
$32 ($8.7) |
$78 ($21.2) |
| Total Annual Expenditures[6] | $21 ($9.6) |
$12 ($5.4) |
$35 ($15.8) |
$64 ($16.3) |
$34 ($9.0) |
$112 ($27.6) |
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.[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.
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),[8] transportation and water infrastructure, and inland Federal asset flood risk.