The federal budget is threatened by climate whiplash.
Growing damage from rising temperatures to property and people is expected to jack up spending, while economic activity is being eroded in sectors like agriculture and manufacturing.
The U.S. Treasury could see losses on both sides of the ledger, and government economists are working to assess the magnitude of those expenses at a time when making payments on the nation’s growing debt of $31.8 trillion has led to political battles that brought the U.S. within days of defaulting.
Experts say it promises to get worse as climate change intensifies.
“Climate change is already impacting the federal budget, in ways many don’t realize,” said former Senate Majority Leader Bill Frist (R-Tenn.).
Frist, who is now global board chair of the Nature Conservancy, said the unpredictability of climate change makes it hard to compare it to other budgetary challenges the U.S. will face this century.
“While we can use census data to estimate our aging population and the associated costs, and the interest on the growing debt can be calculated, the costs of climate change are largely tied to the increased frequency and impact of natural disasters and spreading viruses — much like the costs of a global pandemic,” said Frist, who served on the Senate Budget Committee, in an email to E&E News.
The White House Office of Management and Budget is working on short- and long-term forecasts for the fiscal consequences of warming, along with the Council of Economic Advisers and the Treasury Department. Its early projections are preliminary, but they range from significant to catastrophic.
Federal agencies are already flagging record payouts related to climate change.
NOAA last year reported that the five years between 2017 and 2021 saw an average of 17.2 disasters that cost the taxpayer at least $1 billion each in response and recovery dollars. That’s 10 disasters a year more than the 40-year average. Then last year, the number of billion-dollar disasters reached 18.
While NOAA’s report blamed a boom in real estate development in disaster-prone areas for some of the costs, “climate change is also supercharging the increasing frequency and intensity of certain types of extreme weather that lead to billion-dollar disasters,” it said. Drought and wildfire in the West and heavy rainfall in the East topped the list of those threats.
The U.S. funds rescue-and-recovery efforts when private and state insurance falls short. But Amir Jina, an environmental economist at the University of Chicago, said the U.S. has fallen behind Europe or Japan in limiting those costs by demanding that individuals or local governments split the tab.
Those governments “try to make sure that they are bearing a minimal amount of the risk in terms of that role as the last-mile insurer,” he said.
By contrast, U.S. disaster aid isn’t conditioned on a state’s disaster preparedness or planning. And individual homeowners aren’t always required to carry insurance that internalizes the risk of living in a floodplain or hurricane corridor.
One outcome is a National Flood Insurance Program that is already straining at the seams. The Federal Emergency Management Agency, which oversees the program, asked Congress last month to forgive its debt of more than $20 billion.
The White House expects costs to grow as the century progresses.
The White House budget office projected last year that agencies like FEMA would shell out between $22 billion and $94 billion more each year for coastal disaster response by the end of the century than they would have without climate change.
But the direct cost of responding to a disaster is only part of the government’s tab. Research shows that local economies may take years to fully recover, and may rely on social safety net programs in the meantime — a hidden climate cost that can exceed the direct cost of responding to a disaster.
Tatyana Deryugina, an assistant professor of finance at the University of Illinois, Urbana-Champaign, published research in 2017 showing that counties affected by hurricanes between 1979 and 2002 received substantially more on a per capita basis in increased help from social insurance programs — like Medicaid and food stamps — in the 10 years following the storm than they did in direct disaster relief.
“With climate change, we would just expect greater spending on social safety nets,” said Deryugina in an interview. “If an entire area of the economy is adversely affected by a hurricane, we would expect those programs to kick in much more than perhaps the formal disaster aid assistance.”
Sowing debt
The U.S. taxpayer is also heavily exposed to agriculture risks. Washington on average pays almost two-thirds of farmers’ and ranchers’ crop insurance premiums — and those policies are already shelling out more for climate-related droughts and floods.
The White House last year projected that climate change could add 22 percent annually to the cost of federal crop insurance subsidies by the end of the century.
“Climate upheaval poses serious risks to the nation’s fiscal health,” said Sen. Sheldon Whitehouse (D-R.I.), who chairs the Budget Committee, in an email to E&E News.
White House economists estimate that federal spending for wildfire suppression could grow almost fivefold by century’s end. More than 12,000 federal buildings face inundation from rising seas. And Frist said the escalating cost of taxpayer-funded health care “has the potential to drive bipartisan action” to combat warming.
The federal government covers more than a third of the nation’s health care expenses. And climate impacts — like those experienced along the East Coast this week as a result of Canadian wildfires — could increase hospital visits and costs to taxpayers.
Tax revenue takes a hit
While warming is likely to drive up federal expenditures, it’s expected to have the opposite effect on federal revenues.
“Climate change poses ‘systemic risks’ to the economy; shocks that cascade economy-wide,” Whitehouse said. He indicated that warming could trigger recessions on the scale of the 2008 financial crisis, which reduced U.S. tax receipts by $5 trillion.
A global group of central bank leaders called the Network for Greening the Financial System has estimated that warming could reduce U.S. gross domestic product by as much as 4.5 percent by 2047 and as much as 10 percent by 2100.
Those economic impacts would likely not be felt equally.
Climate-driven losses to the agriculture and construction sectors would disproportionately hit people of color and those with less money who live in rural areas, according to a 2021 EPA report.
Experts say U.S. policymakers and the private sector don’t appear to be planning for what sometimes seems like obvious effects of rising temperatures.
“For instance, I always find it very fascinating when you look at some of the recent investments in Arizona for chips manufacturing and semiconductors,” said Sanjay Patnaik, the director of the Center on Regulation and Markets at the Brookings Institution. “And these plants require huge amounts of water.”
The Grand Canyon State has built several new chip-making plants and factories since 2020, and is looking to capitalize on billions in federal funding for the technology under last year’s CHIPS Act.
“If I ran a company, I would not place it there, because it is already very dry, and it’s just going to get much worse,” said Patnaik.
Stranded assets and lost productivity would mean less revenue for states and the federal treasury.
Gernot Wagner, a climate economist at Columbia Business School, said the growing costs of climate change increasingly justify the expense of reducing its effects through adaptation and decarbonization.
“The more of an emergency that climate change turns into, the more it is basically jumping from emergency situation to emergency situation, the more that local, state and federal government is picking up the tab,” said Wagner.
“Frankly, unmitigated climate change is a fiscal policy disaster,” he added.
