Climate Change: The Fiscal Risks Facing The Federal Government/The Fiscal Case for Climate Action

The Fiscal Case for Climate ActionEdit

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. 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. Air quality modeling also demonstrates that mitigation reduces the vast majority of the increase in air quality-related illnesses and associated Federal health expenditures. In an independent analysis, EPA also found that adaptation can significantly reduce climate change impacts—for example, avoiding trillions of dollars of coastal property damages over the course of this century (EPA, 2015).

Despite the conventional wisdom that reducing emissions will constrain economic growth, recent trends and analysis demonstrate that the United States can achieve rapid emissions reductions while maintaining robust economic growth. 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. 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. If the world tries to hit the Paris Agreement goal of less than 2-degree Celsius increase, but waits a decade to do so, the cost of limiting the temperature change could increase by roughly 40 percent (CEA, 2014).

Higher emissions pathways would also disproportionately affect the health, economic well-being, and quality of life of vulnerable populations—children, older adults, and low-income communities. For example, existing health disparities and other inequities increase vulnerability to climate health impacts like heat waves, degraded air quality, and extreme weather. Low-income families are the most vulnerable to disruptive events that cause household breadwinners to miss work. And low-income communities are least equipped to manage impacts like flooding.

Well-designed public policies can maximize the net benefits from transitioning to a low-GHG pathway and create and preserve economic opportunities for all Americans.