Climate Change: The Fiscal Risks Facing The Federal Government/Charting a Path to a Clearer Picture of Fiscal Risks
Charting a Path to a Clearer Picture of Fiscal Risks edit
The climate science literature continues to advance at a rapid pace, expanding our understanding of the likely physical and ecological effects of climate change. Economists have also made strides in assessing the macroeconomic impacts of climate change. More recently, the climate science literature has turned mtoward assessing impacts to particular sectors and regions, and economists are beginning to follow suit. This type of research is critical for informing decision-making by communities, businesses, and policymakers at all levels of government.
But work is needed to provide more specific and actionable information. 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. 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.
In addition to capturing these dimensions of climate impacts in well-studied areas, considerable work remains in both climate science and climate economics to assess less well-studied impacts. The U.S. Global Change Research Program (USGCRP) Health and Climate Assessment (2016), for example, strengthened our understanding of health-related risks posed by climate change and also highlighted the lack of quantitative assessment in key areas like vector-borne disease and heat-related, non-fatal illness.
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. A key component of this effort is the NCA. In addition to the quadrennial NCA mandated under the 1990 Global Change Research Act, USGCRP is implementing a sustained NCA process that enables new information and insights to be synthesized as they emerge.
The Sustained Assessment will enable new information and insights to be synthesized on a continuous basis, drawing on input from groups that use NCA information in assessments and planning. In this way, the Sustained Assessment will allow future fiscal and economic risk assessments like this one to build on an ever-growing body of relevant and reliable scientific information. The Sustained Assessment will be guided in part by a Federal Advisory Committee (FAC) comprised of non-Federal experts.
Finally, more work is needed to identify and quantify the impact of factors that can mitigate or compound climate change fiscal risk. With a few exceptions, this report mainly focuses on increases in expected multi-year average costs due to unmitigated climate change, holding demographic, economic, and policy factors constant or in line with current trajectories. Yet, investments in adaptation can significantly reduce the costs that will be realized in practice. Conversely, increased development in coastal communities could compound the economic and fiscal impact of hurricanes, for example, just as growth of the wildland-urban interface could further magnify the costs of fire suppression. Understanding these factors and how they interact with the impacts of climate change is important for identifying the conditions under which climate impacts could pose potentially catastrophic risks, as well as for taking steps to mitigate risk.