prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: According to international and U S  government sources, climate change poses serious risks to many of the physical and ecological systems upon which society depends, although the exact details of these impacts are uncertain  Climate change may intensify slow-onset disasters, such as drought, crop failure, and sea level rise  Climate change is also increasing the frequency and intensity of extreme weather events, including sudden- onset disasters, such as floods, according to key scientific assessments  These effects of climate change may alter existing migration trends across the globe, according to IOM  (See appendix II for further discussion of climate change as a driver of migration in seven geographic regions ) For example, sea level rise, a slow-onset disaster, may result in the salinization of soil and drinking water, thereby undermining a country or community’s ability to sustain livelihoods and maintain critical services, which could cause some people to migrate  Sudden-onset disasters may also contribute to migration as people flee natural disasters, in most cases leading to temporary displacement  For example, people may either voluntarily migrate, or be forced to migrate, to earn money needed to rebuild damaged homes after flooding, especially as extreme weather events increase in intensity and number  If unable or unwilling to migrate, people may find themselves trapped or choosing to stay in deteriorating conditions  Sources agree that the effects of climate change generally impact internal migration, while migration across international borders due to climate change is less common  In deciding whether to migrate, people weigh multiple factors including economic and political factors, social or personal motives, or demographic pressures  The effects of climate change add another layer of complexity to this decision, but there is debate about the role climate change plays in migration  Figure 1 depicts how climate change may influence other factors that drive the decision to migrate or stay  There are limitations to reliably estimating the number of people displaced by climate change because there are no reliable global estimates for those migrating due to slow-onset disasters, and estimates for those migrating due to sudden-onset disasters are based on limited data, according to IOM  The lack of reliable data is due in part to the multi- causal nature of migration  Further, IOM notes that forecasts for the number of environmental migrants by 2050 vary from 25 million to 1 billion  They and others have questioned the methodologies used to arrive at even these broad estimates  Migration, potentially driven by climate change, may contribute to instability and result in national security challenges, according to some international organizations and national governments  For example, an influx of migrants to a city may put pressure on existing resources, resulting in tensions between new migrants and residents, or between the population and its government  The U S  Global Change Research Program has also stated that migration, such as displacement resulting from extreme weather events, is a potential national security issue  At different times, the United Nations General Assembly and, in 2014, DOD have deemed climate change to be a threat multiplier, as the effects of climate change could increase competition for resources, reduce government capacity, and threaten livelihoods, thereby causing instability and migration  Further, the U S  intelligence community considers climate change to increase the risks of humanitarian disasters, conflict, and migration  Identifying the cause of a conflict, however, is complicated, and experts debate the connections linking climate, migration, and national security  For example, IOM has reported that existing evidence on climate migration and instability must be considered with caution  Further, some studies stress that other factors can mitigate the effects of climate change on migration and stability, including governance and community resilience, as the World Bank has reported  State, USAID, and DOD are among the U S  government agencies with a role in responding to issues related to climate change, including as a driver of migration  State interacts with foreign governments and international organizations focused on climate change and migration primarily through the Bureau of Oceans and International Environmental and Scientific Affairs (State/OES) and the Bureau of Population, Refugees, and Migration (State/PRM)  USAID supports a range of development programs that help to mitigate the effects of climate change through the Bureaus for Economic Growth, Education and Environment; Democracy, Conflict and Humanitarian Assistance; Food Security; Asia; and Africa; and individual USAID missions  Additionally, USAID’s Offices of U S  Foreign Disaster Assistance (USAID/OFDA) and Food for Peace (USAID/FFP) lead and coordinate the U S  government’s emergency responses to sudden- and slow-onset disasters, and complex emergencies overseas  DOD assists in the United States’ humanitarian response to sudden- onset disasters abroad through its six geographic combatant commands, with support from the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict and the Joint Staff’s Office of Humanitarian Engagement  Climate change as a driver of migration was not a focus of the policy documents we reviewed for either the current or previous administrations during fiscal years 2014 through 2018  Our review of executive actions, budget requests, and executive branch strategies that affected State, USAID, and DOD found only brief mentions of climate change as a driver of migration  None of the documents we reviewed reflected a priority for assessing or addressing climate change as a driver of migration, although these documents reflect a shift in administrations’ climate change priorities more generally  The previous administration issued two executive orders and a presidential memorandum related to climate change  These executive actions had a policy of improving climate preparedness and resilience, factoring climate-resilience considerations into agencies’ international development decisions, and creating forums for interagency coordination  In March 2017, the current administration issued a subsequent executive order revoking some of the previous executive actions related to climate change  See figure 2 for a timeline of these executive actions  The previous administration issued three executive actions related to climate change, which included requirements focused on agencies’ considerations of the impacts of climate change and established forums for interagency coordination  The current administration issued an executive action related to energy independence and climate change  Executive Order 13653: Preparing the United States for the Impacts of Climate Change  Executive Order 13653 stated that agencies—including State, USAID, and DOD—shall, among other things, develop, implement, and update comprehensive Agency Adaptation Plans that integrate consideration of climate change into agency operations and overall mission objectives  Executive Order 13653 also established the Council on Climate Preparedness and Resilience  Executive Order 13677: Climate-Resilient International Development  Executive Order 13677 requires State, USAID, and other U S  government agencies with direct international development programs and investments to incorporate climate-resilience considerations into decision making by assessing climate-related risks to agency strategies, and to adjust relevant strategies as appropriate, among other things  Executive Order 13677 also established the Working Group on Climate-Resilient International Development as part of the Council on Climate Preparedness and Resilience  2016 Presidential Memorandum on Climate Change and National Security  The 2016 presidential memorandum required, among other things, that agencies, including State, USAID, and DOD, develop an agency-specific approach to address climate-related threats to national security  It also required agencies to develop implementation plans that would describe how they would identify the potential impact of climate change on human mobility, including migration and displacement, and the resulting impacts on national security, among other requirements, and stated that the effects of climate change can lead to population migration within and across international borders, spur crises, and amplify or accelerate conflict in countries or regions already facing instability  The 2016 memorandum also established the Climate and National Security Working Group  Executive Order 13783, Promoting Energy Independence and Economic Growth  Executive Order 13783 revoked Executive Order 13653 and the 2016 presidential memorandum, among other things, as seen in figure 2  Priorities related to climate change shifted between the past two administrations as reflected in a recent budget request that reduced some climate change funding affecting U S  foreign assistance  2017 Presidential Budget Request  The previous administration stated in its fiscal year 2017 budget request that “the challenge of climate change will define the contours of this century more dramatically than any other” and that “it is imperative for the United States to couple action on climate change at home with leadership internationally ” The fiscal year 2017 budget request sought $1 3 billion in discretionary funding to advance the goals of the Global Climate Change Initiative, which was established in 2010 and aimed to promote resilient, low-emission development, and integrate climate change considerations into U S  foreign assistance  The $1 3 billion in requested funding included $750 million in U S  funding for the Green Climate Fund, a multilateral trust fund designed to foster resilient low-emission development in developing countries  2018 Presidential Budget Request  The current administration, in its fiscal year 2018 budget request, did not include any funding for the Global Climate Change Initiative  In addition, the current administration’s budget request stated that it “Eliminate the Global Climate Change Initiative and fulfill the President’s pledge to cease payments to United Nations’ (UN) climate change programs by eliminating U S  funding related to the Green Climate Fund     ” Some strategies from the current and previous administrations that affect State, USAID, and DOD, among other agencies, reflect a shift in priorities related to climate change  For example, the previous administration cited climate change as a “top strategic risk” in its 2015 National Security Strategy and stated that climate change is an urgent and growing threat to U S  national security, contributing to increased natural disasters, refugee flows, and conflicts over basic resources like food and water  The current administration does not discuss climate change in its 2017 National Security Strategy  Additionally, State and USAID have a Joint Strategic Plan to help the agencies achieve the objectives of the National Security Strategy  The previous State-USAID Joint Strategic Plan included a strategic goal on “promoting the transition to a low-emission, climate-resilient world” that proposed leading international actions to combat climate change  The current State-USAID Joint Strategic Plan does not have a climate change goal  State, USAID, and DOD were required by executive orders to assess climate change-related risks to their missions and, for State and USAID, to their strategies, among other things  In response to Executive Order 13653, which has since been revoked, the agencies completed adaptation plans that integrated considerations of climate change into agency operations and overall mission objectives  In response to Executive Order 13677, which has not been revoked, State and USAID developed processes for climate change risk assessments for their country and regional planning documents  Although these executive orders did not require a specific assessment of climate change as a driver of migration, all three agencies have discussed the effects of climate change on migration in their adaptation plans and risk assessments  However, State lacks clear guidance on its process for assessing climate change-related risks to its integrated country strategies  State, USAID, and DOD each completed adaptation plans in 2014 that included limited discussions of migration as one potential effect of climate change  Executive Order 13653 directed the agencies to develop or continue to develop, implement, and update comprehensive Agency Adaptation Plans that integrate consideration of climate change into agency operations and overall mission objectives  Each adaptation plan was to include, among other things, a description of how the agency would consider the need to improve climate adaptation and resilience  State  In its 2014 adaptation plan, State included a brief discussion of climate change as one of multiple factors that potentially will drive migration and impact its mission  State reported that the specific impacts of climate change on the ability of the department to promote peace and stability in regions of vital interest to the United States were unknown  For example, according to the plan, an increase in heavy precipitation events around the world could damage the electric grid and transportation and energy water infrastructure, upon which State depends, making it difficult to maintain operations and diplomatic relations  In its plan, State reported that climate change impacts may threaten international peace, civil stability, and economic growth through aggravating existing problems related to poverty and environmental degradation  Further, environmental and poverty- related issues and regional instability could stress relationships with some foreign governments  However, the plan noted that specific impacts of climate change on conflict, migration, terrorism, and complex disasters were still unknown  USAID  In its 2014 adaptation plan, USAID included a brief discussion of migration as one potential effect of climate change that could also impact security  USAID stated that the impact of climate change on its programs and operations, if left unaddressed, could compromise the agency’s ability to achieve its mission  Further, USAID’s plan referred to increased migration as a potential risk of climate change  Flooding and other extreme climate events can result in increased migration, among other impacts, that could affect existing and planned USAID programming  In particular, programs in areas like agriculture and food security, global health, water and sanitation, infrastructure, and disaster readiness and humanitarian response are vulnerable to climate change, according to USAID  In the infrastructure area, climate change may necessitate new protective measures for coastal homes and infrastructure, and in some cases even mass evacuations or permanent migration  USAID stated that climate change could further reduce or alter the distribution of already limited resources like food and water, or force temporary or permanent migration of communities  According to the plan, in areas with high risk factors for conflict, climate change stresses can aggravate tensions and contribute to conflict  DOD  In its 2014 adaptation roadmap, DOD included a brief discussion of migration as one of multiple potential effects of climate change that could impact national security  DOD referred to climate change as a threat multiplier that can aggravate other risks around the world, with migration being one effect that could increase requests for DOD to provide assistance  The roadmap stated that as climate change affects the availability of food and water, human migration, and competition for natural resources, the department’s unique capability to provide logistical, material, and security assistance on a massive scale or in rapid fashion may be called upon with increasing frequency  Furthermore, DOD stated that the impacts of climate change may cause instability in other countries by, among other things, impairing access to food and water, damaging infrastructure, uprooting and displacing large numbers of people, and compelling mass migration  These developments, according to the department, could undermine already fragile governments that are unable to respond effectively, or challenge currently stable governments, as well as increase competition and tension between countries vying for limited resources  In response to Executive Order 13677, State and USAID developed processes for climate change risk assessments for their country and regional planning documents  Though these assessments are not specific to migration, a few of the assessments identified the nexus of climate change and migration  State  State required climate change risk assessments for all new integrated country strategies drafted in 2016 or later  We reviewed 10 integrated country strategies from the two regions that were the first to implement the climate change risk assessment requirement— Africa, and East Asia and the Pacific  All 10 of the strategies included climate change risk assessments, one of which—Cambodia— identified migration as a risk for the country  The Cambodia strategy states that internal migration due to climate change hinders access to health care and the prevention of infectious diseases like malaria  We also reviewed 10 strategies from State’s functional and regional bureaus for assessments of climate-related risks, including 3 functional bureau strategies (State/PRM, State/OES, and State’s Bureau of International Organization Affairs) and 7 regional bureau strategies  All of the functional bureau strategies we reviewed identified climate change as a risk and State/PRM cited the impact of climate change on migration  Of the regional bureau strategies we reviewed, we found that one, the Bureau for East Asian and Pacific Affairs, identified climate change as a driver of migration as a challenge or risk in its region  For example, the strategy states that climate change is becoming increasingly disruptive, potentially increasing migration due to rising sea levels  None of the other six regional bureau strategies we reviewed identified the nexus of climate change and migration as a risk or challenge  However, five regional bureaus identified climate change as a risk or challenge and one identified migration as a risk or challenge  USAID  USAID also requires the integration of climate risk management into all country or regional development cooperation strategies drafted since October 1, 2015  Missions must document in a climate change appendix to the strategy any climate risks they identified and how they considered climate change in their strategy  As of August 2018, USAID had completed five country or regional development cooperation strategy updates initiated since October 1, 2015—Uganda, Tunisia, East Africa, Sri Lanka, and Zimbabwe—and all five included the required appendix  Of the five updated strategies, three—Uganda, Tunisia, and East Africa—discuss the indirect effect of climate change on migration, among other issues  For example, Uganda’s 2016-2021 country strategy states that increased frequency and duration of droughts is likely to be the most significant climate‐related change in Uganda  The strategy also notes that droughts have affected, and will continue to affect, water resources, hydroelectricity production, and agriculture, among other sectors  As agriculture, forestry, and fisheries decline in Uganda, the strategy asserts that people will migrate to urban areas, leading to the formation of slums  We also reviewed USAID’s nine regional development cooperation strategies, one of which—East Africa—had been updated since the requirement to include climate risk management  Of the other eight strategies that have yet to be updated, seven identified climate change as a challenge or risk and three identified climate change as a driver of migration as a challenge or risk  For example, the Southern Africa regional development cooperation strategy states that water scarcity, natural disasters, and other climate change related events will most likely increase migration throughout the region  Additionally, the Asia regional development cooperation strategy discusses the risks of climate change in urban areas  In Asia, the number of migrants seeking economic opportunities in urban centers is likely to increase  According to the strategy, migrants are moving into hazard-prone areas located along coastlines, flood plains, and other low-lying areas in many Asian primary and secondary cities—areas that experts predict will experience more frequent and intense storm surges, floods, and coastal erosion as a result of climate change  The requirement in Executive Order 13677 to assess climate change- related risks to agency strategies remains unchanged; however, State now lacks clear guidance on its process for assessing climate change- related risks to its integrated country strategies  Specifically, State’s 2016 guidance for developing integrated country strategies stated that all missions should assess the risk of climate change on their strategies’ goals and objectives and included reference to the climate risk screening tool—a method that missions could use to assess climate change risks  State issued new guidance to its missions in 2018, but this guidance does not include information on the process for assessing climate change-related risks to agency strategies  According to State officials, the 2018 guidance for integrated country strategies does not reference climate change risk assessments because, in September 2017, State decided that the strategies should not single out climate change risks in a separate appendix  State officials said this decision resulted, in part, from the new administration’s shift in priorities on climate change  Officials also said that this decision reflects a new approach to risk management by State and that the missions could choose to include climate change and other potential risks in the general risk discussion section of their strategies  Officials from State’s Office of U S  Foreign Assistance Resources said that it is now up to each mission to decide whether a strategic objective may have a climate challenge  However, those missions that choose to include an assessment of climate change risks are not provided guidance on the process for doing so and there is no reference to the climate risk screening tool—or to climate change at all—in the 2018 guidance  Executive Order 13677 directed State to incorporate climate-resilience considerations into decision making by assessing climate-related risks to agency strategies, among other things  Subsequently, a State cable from September 2016 further explained that State would implement the executive order’s requirement by screening for climate risks as part of the process for drafting all new integrated country strategies  Additionally, the Standards for Internal Control in the Federal Government state that documentation is a necessary part of an effective internal control system  If management determines that a principle is not relevant, management must support that determination with documentation that includes the rationale of how, in the absence of that principle, the associated component could be designed, implemented, and operated effectively  Because State lacks clear guidance on its process for assessing climate change-related risks to its integrated country strategies, it is less likely that the current round of strategies will include the assessment of climate- related risks  It is also possible that those missions that choose to conduct climate change risk assessments will not do so in a consistent manner  Such assessments might identify climate change as a driver of migration, as at least one previous assessment did under the 2016 guidance  Thus, without clear guidance, missions may not examine climate change as a risk to their strategic objectives and could miss opportunities to improve the climate resilience of foreign assistance activities  For fiscal years 2014 through 2017, State, USAID, and DOD had some activities that could potentially address climate change as a driver of migration, although none of these activities specifically focused on the issue  For example, USAID has climate change adaptation activities, but to date migration has not been a focus of this programming  With the shift in priorities related to climate change in fiscal year 2017, agencies have reduced some of these activities  State’s offices that are focused on the issues of climate change (State/OES) and migration (State/PRM) have participated in multilateral activities related to climate change as a driver of migration and funded adaptation and other activities related to the issue  State officials said that the agency does not, however, have any activities that specifically address migration due to climate change or environmental factors  State has participated in multilateral activities related to climate change and migration  With the shift in priorities related to climate change in fiscal year 2017, the United States has disengaged from some of these multilateral activities (see table 1)  In addition to State’s participation in the multilateral activities described in table 2, State has provided funding for activities related to climate change and capacity building that address natural disasters  These activities may involve efforts potentially related to migration  For example, according to State: State provided about $2 million per year, between fiscal years 2014 and 2016, to the Intergovernmental Panel on Climate Change, which analyzed the impacts of climate change on migration in its most recent assessment report  State/PRM provided about $4 million, between fiscal years 2014 through 2018, for IOM’s Migrants in Countries in Crisis Initiative, which provides guidelines to protect migrants in countries experiencing conflict or natural disasters  IOM provides training to countries on these guidelines  State/PRM officials said that this initiative is not specifically related to climate change and does not focus on specific types of disasters but does mention sudden-onset disasters  Officials also said that IOM tries to promote a climate change perspective in its trainings  State/OES provided about $78 million in adaptation funding from the Global Climate Change Initiative to eight projects during fiscal years 2014 through 2017  (See appendix III for a description of all eight projects ) State/OES officials said that these projects help countries prepare for the impacts of climate change, potentially reducing the pressure to migrate  However, to these officials’ knowledge, none of these projects directly supported activities related to migration  For example, State/OES provided a $4 million grant to the National Adaptation Plans Global Network  This network focuses on increasing the capacity of governments to identify and assess climate risks, integrate these risks in planning, develop a pipeline of projects to address these risks, identify and secure funding for projects, and track progress toward resilience targets  Adaptation activities occurred in over 35 countries  With the shift in priorities related to climate change in fiscal year 2017, State discontinued some of these efforts  For example, funding for the Global Climate Change Initiative was not included in the President’s budget request for fiscal year 2018  State/OES officials said that the agency does not plan to fund additional adaptation activities and has not requested additional funding for the activities  According to a State official, PRM had been in discussion with IOM to develop a project proposal that would have assisted the governments of Small Island Developing States in adapting their migration policies to account for challenges and opportunities associated with environmental degradation, ecosystem loss, climate change impacts, and natural disasters  State/PRM stopped further development of the proposal following the change in administrations  Additionally, according to a State official, the department made some efforts at the end of the previous administration to develop a formal position on the topic of climate change as a driver of migration  For example, State drafted an internal document to help clarify its role in responding to the humanitarian aspects of sudden-onset and slow-onset climate events  This initial work stopped under the current administration  USAID officials said that, with respect to the agency’s climate-related programming, its climate change adaptation programming was the most likely to include activities related to migration or displacement, although a broad swath of USAID development programming has the potential to build host country resilience  Officials stated that, to date, migration has not been a primary motivation for the agency’s climate-related or disaster assistance programming  However, officials said that, in a humanitarian crisis or under some economic conditions, development programming can reduce displacement or the pressure to migrate—such as by fostering greater resilience to drought or other adverse conditions—and that this is also true of climate-related programming  USAID also provides humanitarian assistance in response to natural disasters that displace people  Officials said that USAID recognizes the links between displacement and natural disasters, but that the agency does not have specific programs linking disaster assistance, migration, and climate change  USAID identified about 250 activities that received adaptation funding from the Global Climate Change Initiative during fiscal years 2014 through 2016  Our analysis of the descriptions of these activities determined that none directly mentioned any efforts specifically related to migration  Officials emphasized that the connection between climate change and migration tends to be indirect and shaped by other more immediate factors  USAID’s data on activities that received adaptation funding identified 38 beneficiary countries, as well as activities described generally as implemented at the regional or global level  For activities where USAID’s data identified a specific region, most activities were located in Africa followed by Asia and Latin America and the Caribbean  Examples of the types of activities that received adaptation funding from the Global Climate Change Initiative during fiscal years 2014 through 2016 include: The Mali Climate Change Adaptation Activity, which aims to build resilience to current climate variability and increase resilience to longer-term climate change effects  This activity is also working to strengthen the capacity of Mali’s meteorological agency to provide improved climate information as well as to incorporate climate considerations into local-level planning  The total estimated cost is about $13 million over 5 years  The activity for Climate-Resilient Ecosystems and Livelihoods, which ended in September 2018, aimed to increase Bangladesh’s resilience to natural hazards by working with community-based organizations, government ministries, and technical agencies  This activity provided technical assistance to the Government of Bangladesh and local communities to improve ecosystem conservation and resilience capacity  The total estimated cost was about $33 million in funding over 6 years  The activity for Pastoralist Areas Resilience Improvement through Market Expansion, which aims to support pastoralists in Ethiopia via expansion of markets and long-term behavior change (see fig  3)  USAID officials cited this activity as an example of adaptation efforts that indirectly address the issue of climate change as a driver of migration  The activity has three interrelated objectives: increasing household incomes, enhancing resilience, and bolstering adaptive capacity to climate change among pastoral people in Ethiopia  An evaluation of the activity found that migration is a coping strategy for dealing with climate shocks, although participants said that drought is becoming more frequent, placing a severe strain on traditional coping mechanisms, such as migration and selling cattle, and that permanent migration is not a preferred strategy  The total estimated cost is about $60 million in funding over 6 years  With the shift in priorities related to climate change, funding for USAID’s climate change adaptation activities has decreased  Missions may continue to fund their adaptation activities with discretionary funds or other earmarked, sector funding, provided the activities further the funding source’s objective, according to USAID  For example, in some cases, missions are using Water sector funding to continue some of their adaptation work  USAID also said that among the agency’s goals are to increase the resilience of USAID partner countries to recurrent crises, including climate variability and change  In addition to USAID’s climate change adaptation programming, USAID/OFDA and USAID/FFP provide emergency humanitarian assistance to people affected by sudden-onset disasters—such as hurricanes and floods—and slow-onset and extended disasters, including droughts and conflicts  Some of this assistance helps people who have been displaced by disaster  USAID officials stated that although disasters cause mainly temporary displacement, the relationship among humanitarian assistance, climate change, and migration is very complex and depends on both climatic and non-climatic factors  USAID/OFDA responded to 267 disasters from fiscal year 2014 through June 2018, according to agency data  For example, USAID/OFDA responded to the effects of Hurricane Matthew in Haiti in October 2016, as seen in figure 4, including helping temporarily displaced people  DOD assists in the U S  government response to overseas disasters, including helping people displaced by such disasters, regardless of the cause of the disaster  These efforts are not specific to climate change as a driver of migration  For example, officials from DOD’s geographic combatant commands said that, to the extent they address climate change, migration is not a focus of those efforts and they view migration as caused by security and economic issues  Between fiscal years 2014 and 2018, Congress has appropriated to DOD between $103 and $130 million per year for Overseas Humanitarian, Disaster, and Civic Aid  Officials said that the geographic combatant commands use most of this funding for steady state humanitarian assistance related to health, education, basic infrastructure, and disaster preparedness with a smaller amount set aside for immediate disaster assistance although that varies based on emergency requirements  DOD officials said that they have not seen any changes to this funding or associated activities with the change of administrations in fiscal year 2017  DOD officials we spoke with also emphasized that USAID/OFDA is the lead agency for the U S  government’s response to disasters overseas  USAID/OFDA formally requested DOD support on about 10 percent of the foreign disaster assistance provided by USAID/OFDA, according to USAID data for fiscal year 2014 through June 2018 and DOD officials  DOD assistance is typically provided for the largest, most complex disasters, according to agency officials  According to a July 2015 assessment conducted by the geographic combatant commands, while their activities vary, each command works with partner nations to increase their abilities to reduce the risks and effects from environmental impacts and climate-related events, including severe weather and other hazards  For example, in the report, U S  Southern Command stated that it had requested funding to pre-position assets for when a severe storm threatens Haiti to be able to respond immediately to a potential disaster  U S  Southern Command officials said that they work with partner nations to encourage residents experiencing extreme weather to remain where they are because it is easier to provide help to people who stay in one place  Officials from U S  Southern Command and U S  Africa Command also said that the major factors driving migration in their regions are security and economic issues  State, USAID, and DOD have participated in interagency forums regarding climate change, which may have addressed its effects on migration  With changes to priorities regarding climate change in fiscal year 2017, these forums have been disbanded or are not meeting  The Council on Climate Preparedness and Resilience  The Council on Climate Preparedness and Resilience, of which State, USAID, and DOD were members, was established to facilitate the integration of climate science in policies and planning of government agencies, including by promoting the development of climate change related information, data, and tools, among other things  Additionally, the council was to develop, recommend, and coordinate interagency efforts on priority federal government actions related to climate preparedness and resilience  According to State officials, the council began working with the National Security Council and other agencies to facilitate greater interagency cooperation on adaptation  In addition, a task force on the council was discussing the federal role in addressing displacement related to climate change  The council was disbanded when Executive Order 13783 revoked Executive Order 13653, which had established the council  The Working Group on Climate-Resilient International Development  The Working Group on Climate-Resilient International Development, of which State and USAID were members, was established by Executive Order 13677 and placed under the Council on Climate Preparedness and Resilience  The working group’s mission includes developing guidelines for integrating considerations of climate-change risks and climate resilience into agency strategies, plans, programs, projects, investments, and related funding decisions, among other things  Additionally, the working group was tasked with facilitating the exchange of knowledge and lessons learned in assessing climate risks to agency strategies, among other things  USAID officials said that the working group had not discussed climate change as a driver of migration  While the working group has not been formally disbanded, it has not met since at least November 2017 according to USAID  The Climate and National Security Working Group  The Climate and National Security Working Group, of which State, USAID, and DOD were members, was established by the 2016 presidential memorandum  The chairs of the working group were to coordinate the development of a strategic approach to identify, assess, and share information on current and projected climate-related impacts on national security interests and to inform the development of national security doctrine, policies, and plans, among other things  According to the memorandum, the working group was to provide a venue for enhancing the understanding of the links between climate change- related impacts and national security interests and for discussing opportunities for climate mitigation and adaptation activities to address national security issues  This working group was disbanded when Executive Order 13783 revoked the 2016 presidential memorandum, which had established the working group  State, USAID, and DOD assessments and activities have not focused specifically on the nexus of climate change and migration  State did identify migration as a risk of climate change in at least one of its climate change risk assessments for the department’s country strategies  However, State now lacks clear guidance on its process for assessing climate change-related risks to its integrated country strategies  State’s current guidance for these country strategies no longer mentions a climate change risk assessment and does not provide missions with information about the climate risk screening tool that can be used to conduct such an assessment  As such, missions are less likely to examine climate change as a risk to their strategic objectives, or to do so in a consistent manner, and thus may not have the information they would need to identify migration as a risk of climate change  By clearly documenting and providing guidance on how to assess the risk of climate change, State would ensure that the department examines the potential risks of climate change on its foreign assistance activities  We are making the following recommendation to State: The Secretary of State should ensure that the Director of the Office of U S  Foreign Assistance Resources provides missions with guidance that clearly documents the department’s process for climate change risk assessments for integrated country strategies  (Recommendation 1) We provided a draft of this product to State, USAID, and DOD for review and comment  State provided written comments, which we have reprinted in appendix IV  In its comments, State did not oppose the recommendation and noted that the agency will update its integrated country strategy guidance by June 30, 2019 to inform missions that they have the option to include an annex on climate resilience, as well as other topics  However, State also indicated that the agency will begin working with stakeholders to consider whether to recommend that the Secretary of State ask the President to rescind Executive Order 13677: Climate- Resilient International Development  USAID also provided written comments, which we have reprinted in appendix V  In its letter, USAID provided some additional information about its programs and its proposed transformation effort  USAID and DOD provided technical comments, which we incorporated as appropriate  We are sending copies of this report to the appropriate congressional requesters, Secretary of State, the Administrator of USAID, and the Secretary of Defense  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact David Gootnick at (202) 512-3149 or gootnickd@gao gov, or Brian J  Lepore at (202) 512-4523 or leporeb@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix VI  This report (1) describes executive branch actions related to climate change and migration from fiscal years 2014 through 2018; (2) examines the extent to which the Department of State (State), the U S  Agency for International Development (USAID), and the Department of Defense (DOD) have discussed the potential effects of climate change on migration in their plans and risk assessments; and (3) describes State, USAID, and DOD activities, if any, that are related to climate change and global migration  We chose fiscal years 2014 through 2018 as our time frame based on our review of recent executive orders related to climate change  We selected State, USAID, and DOD because the agencies’ missions of diplomacy, development, and defense provide the foundation for promoting and protecting U S  interests abroad  To describe executive branch actions related to climate change and migration from fiscal years 2014 through 2018, we reviewed documents that reflect priorities of the previous and current administrations  Specifically, we reviewed budget requests and enacted appropriations between fiscal years 2014 through 2018 for funding priorities related to climate change and U S  foreign assistance  In addition, we reviewed executive actions and executive branch strategies that applied to State, USAID, and DOD between fiscal years 2014 through 2018 for executive and national security priorities related to climate change  For example, we reviewed the current and previous national security strategies  strategies and seven regional bureau strategies  For USAID, we examined the five country and regional strategies that were required to include a climate risk assessment at the time of our review: Uganda, Tunisia, East Africa, Sri Lanka, and Zimbabwe  We also reviewed all nine USAID regional strategies  For both State and USAID, we reviewed the selected strategies by searching for information related to migration and climate change  To determine whether State clearly documents the department’s current climate risk assessment process for integrated country strategies, we compared State’s 2018 guidance for developing integrated country strategies with standards related to documentation in Standards for Internal Control in the Federal Government and previous State guidance issued in 2016, which was created in response to Executive Order 13677’s requirements to assess climate change risks to strategies, among other things  to these issues  The agency then provided us with data for about 250 activities from its annual operational plans for fiscal years 2014 through 2016, the 3 years during the period we reviewed in which it received adaptation funding  USAID identified these activities based on whether the agency had tagged them in its plans as having an “adaptation key issue ” USAID excluded projects that had planned attributions to the adaptation key issue of less than $250,000 in a given fiscal year, as well as certain other activities such as those that focused on project support  We then conducted an automated review of the activity description fields provided by USAID for terms related to migration and other descriptive information such as locations of activities  Because no USAID adaptation activities specifically mentioned migration, for the purposes of this report we chose illustrative examples to provide context for the types of activities the agency has funded  DOD officials we met with did not identify any specific activities related to climate change as a driver of migration  DOD officials from the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict and the geographic combatant commands generally discussed DOD activities related to humanitarian assistance and disaster response as most relevant to our inquiry  Because DOD works in coordination with USAID’s Office of U S  Foreign Disaster Assistance on disaster assistance we also reviewed USAID data on its disaster response activities during this period  We determined that the USAID and State adaptation project data and USAID disaster assistance data were sufficiently reliable for the purposes of describing these efforts  State, USAID, and DOD to obtain information on whether changes in government priorities related to climate change affected their activities  We conducted this performance audit from October 2017 to January 2019 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  This appendix provides a review by region of observed and projected climate change effects, migration trends, and challenges in stability and security  Multiple sources we used for this overview make a connection between climate change and such events as rising sea levels, higher temperatures, and an increase in the number and severity of extreme weather events  The following regions are discussed: Asia, South America, the Arctic, Sub-Saharan Africa, the Middle East and North Africa, Oceania, and Central America and the Caribbean  We have provided an overview for each region and a focus on one country or territory in the region  international and regional organizations, including a variety of organizations within the United Nations, the World Bank, regional development banks, the European Union, and others  Third, we reviewed relevant public documents from U S  government agencies, including the Department of Defense, the U S  Agency for International Development (USAID), and the United States Institute of Peace (USIP)  Fourth, we reviewed academic sources, research institutions, and documents from the relevant country’s national government  population  Economic conditions may be a factor for people deciding whether to migrate or stay in their country of origin  Remittances as Percent of GDP: The money international migrants transfer to recipients in their country of origin, expressed as a percentage of the origin country’s GDP  Sources agree that remittances support resilience in origin countries  Agriculture, Fishing, Forestry as Percent of GDP: A measure of the value added to an economy from the agricultural sector, which includes forestry, hunting, fishing, and the cultivation of crops and livestock, expressed as a percentage of the country’s GDP  Countries that depend on the agricultural sector may be vulnerable to the effects of climate change, according to the World Bank  Percent of Population in Cities: The population living in areas classified as urban according to criteria each country uses  Today, more than half of the global population lives in cities  Migration, in some cases due to climate change, is an important driver of urban growth, according to IOM  Cities are also expected to face increasing risks from rising sea levels, flooding, storms, and other climate change effects  Net Migration Rate: A measure of the number of people leaving a country compared to the number of people entering a country, expressed as a number per 1,000 people  The effects of climate change in Asia may impact migration and stability according to the Intergovernmental Panel on Climate Change (IPCC) and the Asian Development Bank (ADB)  In coastal areas, effects of climate change include rising sea levels, storm surges, and others  Receding glaciers in mountanous areas may also cause flooding, and monsoons in a warmer climate may be more severe  Heat extremes and more rainfall are a particular concern in Southeast Asia  Changes in precipitation and drought in Asia may exacerbate food security challenges, and contribute to people deciding to migrate  Increases in migration, partly stemming from the effects of climate change in surrounding rural areas, may put pressure on existing urban infrastructure  Rural migrants may settle in informal communities on the outskirts of cities, areas that have little resilience to natural disasters  Although the World Bank and others agree that climate change largely causes internal migration, some evidence shows that the impact of climate change contributes to cross-border migration in Asia  Large numbers of migrants, along with other destabilizing factors, may contribute to instability and conflict, according to the IPCC  The effects of climate change on livelihoods, for example, could increase migration, strain governance, and contribute to conflict as a result  Bangladesh is one example where decreased yields from agriculture and fisheries have contributed to migration to the country’s coastal cities, which face their own climate change challenges  Bangladesh’s high population density and geography make the country susceptible to the effects of climate change, according to the World Bank, and others  Bangladesh’s coasts and river banks are vulnerable to sudden-onset events such as tropical cyclones and flooding  Cyclone Aila in 2009, for example, caused widespread flooding in the southern coastal areas of Bangladesh and impacted millions of people  The storm washed away embankments that protected coastlines and caused severe damage to crops and livelihoods  Tropical Cyclone Mora in 2017 damaged thousands of homes and displaced an estimated 200,000 people  Increases in the number and intensity of tropical cyclones, which some predict will occur in a warmer climate, could have severe impacts on homes, livelihoods, and food security  Bangladesh also experiences many slow-onset climate change events, such as rising sea levels and increasingly severe droughts, which are projected to intensify with climate change  Bangladesh would lose an estimated 17 5 percent of its land if the sea level rose 1 meter, as the International Organization for Migration (IOM) has reported  Projected changes in precipitation levels could cause drought and food insecurity in the northwest and salt-water intrusion could reduce crop yields in the southwest  Migration is a common adaptation strategy to climate change in Bangladesh, according to the ADB  For example, some farmers have adapted to salt water intrusion and destroyed crops by switching to salt- tolerant rice production or shrimp cultivation  Others have migrated, often to Bangladesh’s cities to find work less dependent on agriculture  Many new migrants to Bangladesh’s cities live in informal settlements that lack the resilience to withstand sudden-onset climate events  The capital city, Dhaka, is a common destination for migrants displaced by salt-water intrusion, flooding, and river erosion, according to IOM  Dhaka, like many coastal cities in South Asia, is located on a low-lying riverbank and faces increasing risks of extreme flooding  For example, past floods in Dhaka have destroyed homes and contaminated drinking water, creating significant health hazards  In some cases, individuals migrate to cities temporarily for work and return home after the agricultural off season ends  Bangladeshis also provide a significant number of labor migrants to the Gulf States and Malaysia  Remittances from international migrants represent 5 4 percent of the country’s GDP, and may help to support resilience to climate change, according to IOM, and others  These migration trends may intensify in the future  One study estimates 9
Report 2:  We previously found that federal programs should be reexamined if there have been significant changes in the country or the world that relate to the reason for initiating the program  In that report, we found that many federal programs and policies were designed decades ago to respond to trends and challenges that existed at the time of their creation  Moreover, the Office of Management and Budget Circular A-94 for benefit-cost analysis of federal programs includes guidelines that apply to any analysis used to support government decisions to initiate, renew, or expand programs or projects that would result in a series of measurable benefits or costs extending for 3 or more years into the future  Given changing market conditions and future projections, without conducting additional analysis to supplement its 2016 review and thereafter periodically reexamining the SPR to take into account changes in market conditions and include a thorough consideration of the costs and benefits of a wide range of SPR sizes, DOE cannot provide information to Congress to inform decisions about the appropriate size of the SPR and risks holding too much or too little in the SPR to meet the United States’ evolving energy security needs and IEA obligations  DOE has also not fully identified whether additional regional petroleum product reserves should be part of the SPR  Because the SPR stores oil nearly exclusively along the Gulf Coast, the SPR is configured primarily to respond to global oil supply disruptions  However, as we reported in November 2017, the SPR has primarily been used in response to domestic disruptions  The SPR is limited in its ability to respond to domestic disruptions because reserves are almost entirely composed of crude oil and not refined petroleum products, which may not be effective in responding to disruptions that affect the refining sector  For example, as we reported in November 2017, Hurricanes Harvey, Irma, and Maria damaged infrastructure and property, caused the loss of life, and disrupted the operations of refineries representing at least 15 percent of the nation’s refining capacity  DOE has identified regions subject to product supply vulnerabilities as shown in Figure 3  The Quadrennial Energy Review of 2015 recommended that the agency analyze the need for additional or expanded regional product reserves by undertaking updated cost-benefit analyses for all of the regions of the United States that have been identified as vulnerable to fuel supply disruptions  In response to this recommendation, DOE studied the costs and benefits of regional petroleum product reserves in the West Coast and Southeast Coast  According to DOE officials, weather events in the Southeast Coast are of higher probability but lower consequence, and events in the West Coast are of lower probability but higher consequence  DOE did not finalize its 2015 studies on regional petroleum product reserves and make them publicly available  However, the draft 2015 studies concluded that a product reserve in the Southeast would provide significant net economic benefits to the region and the United States, particularly in the event of a major hurricane, while further analyses are needed to determine the potential benefits of a reserve on the West Coast  A prior DOE study also suggests that petroleum product reserves merit consideration—in 2011, DOE carried out a cost-benefit study of the establishment of a refined product reserve in the Southeast and estimated that such a reserve would reduce the average gasoline price rise by 50 percent to 70 percent in the weeks immediately after a hurricane landfall, resulting in consumer cost savings, according to the Quadrennial Energy Review of 2015  According to DOE officials, the agency has no plans to conduct additional studies  DOE’s 2016 review of the SPR did not fully assess whether there is a need for additional regional product reserves in other U S  regions identified as vulnerable to fuel supply disruptions, as recommended by DOE’s studies and the 2015 Quadrennial Energy Review  Without completing studies on the costs and benefits of regional petroleum product reserves for all the vulnerable U S  regions and publicly releasing the results, DOE cannot ensure that it and Congress have the information they need to make decisions about whether additional regional product reserves are needed  DOE has taken steps to take into account the effects of congressionally mandated oil sales in its plans for modernizing the SPR, though DOE’s current plans are based on information largely developed prior to the most recent congressionally mandated oil sales  According to DOE, the SPR modernization program is focused on a life extension project to modernize aging infrastructure to ensure the SPR will be able to meet its mission requirements for the next several decades  The project’s scope of work has undergone several revisions since its inception in response to changing conditions and requirements, according to the agency  DOE has estimated the total cost for the SPR’s modernization at up to $1 4 billion  DOE raised about $323 million for modernization through the sale of SPR oil in fiscal year 2017, and the Consolidated Appropriations Act of 2018 provided that DOE is to draw down and sell an amount of crude oil not to exceed $350 million for modernization in fiscal year 2018  As of the end of February 2018, DOE has spent $22 million on modernization efforts and the additional funds will allow DOE to continue moving forward with the project, according to agency officials  According to DOE’s modernization plans, the first major construction is scheduled for fiscal year 2019  However, these plans are largely based on information DOE analyzed before recent congressionally mandated sales of an additional 117 million barrels of oil  Since the most recent mandated sales, DOE has taken steps to update its modernization plans and has changed its assumptions for SPR’s modernization  For example, DOE now assumes that the reserve will hold about 405 million barrels of oil and that one of the four SPR sites may close after congressionally mandated sales are completed at the end of fiscal year 2027, according to agency officials  However, DOE has not fully updated the SPR’s modernization plans based on these assumptions  According to DOE officials, in March 2018, DOE commenced a study—the SPR post-sale configuration study—to examine potential future reserve configurations  This study is to take into account the effects of congressionally mandated sales on the reserve and its modernization, and is targeted for completion in October 2018, according to agency officials  Information from the study will inform DOE’s updates to the SPR’s modernization plans, according to DOE officials  As part of its post-sale configuration study, DOE plans to examine how the agency may handle the potentially excess SPR facilities created by the mandated sales  In January 2017, the SPR had a design capacity to hold 713 5 million barrels of oil and actually held 695 million barrels  As shown in figure 4, without action by DOE to reduce the SPR’s design capacity or otherwise use SPR facilities, congressionally mandated sales will cause excess storage capacity to grow to 308 million barrels or more by the end of fiscal year 2027—meaning that about 43 percent of the SPR’s total design capacity to store oil would be unused  DOE plans to explore some options to use these potentially excess SPR assets in its ongoing post-sale configuration study  In withdrawing oil to meet congressionally mandated oil sales currently in place (290 million barrels through fiscal year 2027), DOE could close at least one SPR site based on our analysis of projected excess storage capacity  For example, if DOE were to close the smallest SPR site, Bayou Choctaw, the agency could also explore selling the connected pipeline and marine terminal, which are currently being leased to a private company  DOE could also consider leasing excess storage capacity to other countries so that they could store oil at the SPR  DOE has not entered into any such leases with other countries and has not considered such leases because, according to DOE, the SPR has historically lacked capacity to store additional oil  DOE has not proposed any of these options or explored the revenue the agency could generate by selling or leasing these assets  According to DOE officials, the agency will examine the feasibility of such options in the ongoing SPR post-sale configuration study  As DOE takes steps to plan for the SPR’s modernization, ongoing uncertainty regarding the SPR’s long-term size and configuration have complicated DOE’s efforts  According to DOE officials, this uncertainty makes it extremely difficult to effectively perform any mid-to long-range planning efforts for the SPR’s modernization project, including the execution of major maintenance projects  Congress has generally set the SPR’s size by mandating purchases or sales of oil, and has established and amended the minimum size of the SPR as it pertains to the release of oil for emergency protection  Since 2015, Congress has, across six pieces of legislation, mandated 290 million barrels in additional oil sales  However, DOE developed its modernization plans in 2016  DOE officials told us they do not know whether additional sales will be mandated over the next 10 years or whether other changes may be required to the configuration of the reserve  Any additional congressionally mandated sales or direction to pursue additional petroleum product reserves would require DOE to again revisit its modernization plans and assessments of the potential uses of any excess SPR assets  Oil market projections also have implications for the future of the SPR  Under current projections, the United States may fluctuate between being a net importer and net exporter over the next several decades  Specifically, the United States is projected to become a net exporter by the late 2020s and would then no longer have a 90-day reserve obligation, but it is projected to return to being a net importer between 2040 and 2050  These projected fluctuations could affect the desired size of the SPR in the future  This uncertainty creates risks for DOE’s modernization plans, as DOE may end up spending funds on facilities that later turn out to be unnecessary should Congress ultimately decide on a larger- or smaller-sized SPR than DOE anticipates  Having a long-term target for the size and configuration of reserves helps other IEA member countries manage their reserves  For example, as previously discussed, unlike the United States, some other IEA members have specified in dynamic terms the amount of reserves to be held, such as days of net import protection or days of consumption, rather than specifying a specific static volume amount  Under such approaches, the amount held varies over time as entities managing the reserve acquire or sell reserves in order to meet the target  Setting a long-term target for the size and configuration of the SPR—taking into account projections for oil production, consumption, and IEA obligations—could better position DOE to ensure that funds spent on the SPR’s modernization do not modernize a system that is no longer needed and that DOE is able to adequately plan for potentially excess SPR assets  In the course of our work, we also identified other options for handling potentially excess SPR assets that DOE is not planning on examining, largely because DOE does not currently have the authority to pursue them, according to agency officials  First, DOE could explore leasing storage capacity to private industry  U S  oil production has generally increased over the last decade  As a result, the private sector may want to lease excess SPR capacity, which may be cheaper than above-ground storage, according to a representative of a private company we spoke with  Fees for doing so could help defray public reserve storage costs  However, officials told us that the Energy Policy and Conservation Act gives DOE authority to lease underutilized storage to other countries, but not to the private sector  Second, if Congress determines that the SPR holds oil in excess of that needed domestically, DOE could explore selling contracts or tickets for the excess oil rather than selling the oil outright  Australian and New Zealand officials told us that if DOE were to sell tickets for SPR oil, tickets would help these countries meet their IEA 90- day reserve obligations  Australian officials told us they have discussed this option with DOE  Currently the United States and Australia have agreed, through an arrangement, to allow Australia to contract for petroleum stocks located in the United States and controlled by commercial entities  According to DOE officials, the arrangement would permit Australia to receive credit from the IEA for tickets it purchases from the U S  private sector  While the arrangement does not cover government-owned oil in the SPR, if it did, based on our analysis, DOE could generate up to approximately $15 million annually if Australia purchased the maximum allowable amount of oil specified in an arrangement through tickets for excess SPR oil  However, although the Energy Policy and Conservation Act allows DOE to lease underutilized storage to other countries, DOE lacks the authority to sell tickets and does not plan to seek this authority, according to DOE officials  DOE officials told us that they do not plan to examine these options  According to DOE’s real property asset management order, the agency is to identify real property assets that are no longer needed to meet the program’s mission needs and that may be candidates for reuse or disposal  Once identified, the agency is to undertake certain actions, including determining whether to dispose of these assets by sale or lease  As part of its SPR post-sale configuration study, DOE plans to determine whether it is appropriate to close SPR facilities, and the relative benefit of any closures would be informed by potential lease revenues from maintaining sites so they could be leased, according to officials  However, without examining a full range of options in the post-sale configuration study, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources  Given changing crude oil and petroleum product market conditions and the constrained budget environment, it is important that DOE ensures the SPR is effective at meeting U S  energy security needs and IEA obligations while being managed and maintained in an efficient manner  In response to congressional direction and recommendations from GAO and DOE Inspector General, DOE conducted a long-term strategic review of the SPR in 2016 after its last comprehensive examination in 2005  In its review, DOE did not determine an optimal size for the SPR, and its analysis was limited in several ways  In particular, DOE did not fully consider recent and expected future changes in crude oil and petroleum market conditions such as the implications of projected fluctuations in U S  net imports or the role that increased levels of private reserves could play in responding to supply disruptions  DOE also did not perform a full cost-benefit analysis of holding different volumes of reserves  Without supplementing its 2016 strategic review by conducting additional analysis, and periodically conducting such analyses going forward, DOE cannot provide information to Congress to inform decisions about the appropriate amounts of crude oil and petroleum products to hold in the SPR and risks holding too much or too little in the SPR to meet the United States’ energy security needs and international obligations  Such information is needed on a timely basis, to reflect the pace of change in oil and petroleum markets and other relevant factors that affect the optimal size of the SPR  Though the SPR has primarily been used in response to domestic supply disruptions, such as hurricanes, the reserve is limited in this role because it is almost entirely composed of crude oil, and not petroleum products  In this regard, the Quadrennial Energy Review of 2015 recommended that DOE analyze the need for additional regional product reserves for U S  regions that have been identified as vulnerable to fuel supply disruptions  DOE has not identified whether additional regional product reserves should be part of the SPR or completed studies of all vulnerable U S  regions, and it has no plans to do so, according to DOE officials  Without conducting or completing studies for all the vulnerable U S  regions and releasing the results, DOE cannot ensure it and Congress have the information they need to make decisions about potential additional regional product reserves  In the face of declining net U S  imports, Congress has taken repeated steps to reduce the size of the reserve  Given that net imports are projected to continue to decline through the late 2020s and fluctuate in the future, there may be additional congressionally mandated SPR oil sales  This has created long-term uncertainty regarding the future size and configuration of the SPR  Congress could address this uncertainty by identifying a long-term target for the size of the SPR—either by volume or in terms tied to factors, such as consumption or net import protection, that affect the country’s energy security needs and IEA obligations  Setting such a long-term target could better position DOE to ensure the efficiency and efficacy of federal funds spent on the reserve  DOE has recently begun to study the potential effects of congressionally mandated sales on its modernization plans  As part of its SPR post-sale configuration study, DOE plans to determine whether it is appropriate to close SPR facilities, and the relative benefit of any closures would be informed by potential lease revenues from maintaining sites so they could be leased, according to officials  However, we identified other options for handling potentially excess SPR assets that DOE is not planning to examine in its study, inconsistent with the agency’s order on real property asset management  Although DOE does not currently have the authority to implement these options, according to officials, examining their potential use, including possible revenue enhancement, could inform Congress as it examines whether it should grant such authority  Without examining a full range of options in the post-sale configuration study for handling potentially excess SPR assets, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources  We are making the following matter for congressional consideration: Congress may wish to consider setting a long-range target for the size and configuration of the SPR that takes into account projections for future oil production, oil consumption, the efficacy of the existing SPR to respond to domestic supply disruptions, and U S  IEA obligations  (Matter 1) We are making four recommendations to DOE: The Secretary of Energy should supplement the agency’s 2016 long-term strategic review by conducting an additional analysis that takes into account private-sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes  (Recommendation 1) The Secretary of Energy should take actions to ensure that the agency periodically conducts and provides to Congress a strategic review of the SPR that, among other things, takes into account changes in crude oil and petroleum product market conditions and contains additional analysis, such as the costs and benefits of a wide range of different SPR sizes  (Recommendation 2) The Secretary of Energy should conduct or complete studies on the costs and benefits of regional petroleum product reserves for all U S  regions that have been identified as vulnerable to fuel supply disruptions, and the Secretary should report the results to Congress  (Recommendation 3) The Secretary of Energy, in completing DOE’s ongoing study on the effects of congressionally mandated sales, should consider a full range of options for handling potentially excess assets and, if needed, request congressional authority for the disposition of these assets  (Recommendation 4) We provided a draft of this report to DOE for review and comment  DOE provided written comments, which are reproduced in appendix I  Of the four recommendations, DOE agreed with two, partially agreed with one, and disagreed with one  Regarding our recommendation that DOE supplement its 2016 long- term strategic review with an additional analysis that takes into account private sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes, the agency partially agreed with the recommendation  DOE agreed to conduct an additional analysis to assess the purpose, goals, and objectives of the SPR, taking into account private sector response, oil market projections, and any other relevant factors, that will lead to an evaluation of possible optimal sizes of the SPR in the future  In response to taking into account the costs and benefits of a wide range of different SPR sizes, DOE stated that the agency determined the projected benefits of a wide range of different SPR sizes ranging from 430 million barrels of oil to 695 million barrels of oil in its 2016 review  However, the minimum SPR size considered by DOE is greater than the projected SPR size after congressionally mandated sales have occurred  Further, the SPR size after congressionally mandated sales is projected to be far in excess of the IEA obligation to hold a minimum of 90 days of net imports  DOE must also consider the minimum size needed to meet its IEA obligations in the event of a collective action  In conducting additional analysis, DOE should consider a smaller lower bound, in line with congressionally mandated sales, for the size of the SPR, and more fully consider the size needed to meet the IEA 90-day net import and collective action obligations  Regarding our recommendation that DOE conduct periodic reviews of the SPR, the agency agreed with the recommendation  DOE stated that a 5-year time interval between reviews would strike an appropriate balance between the need to periodically conduct a strategic assessment and evaluation of the SPR and the limitations on resources to plan and conduct such a review  Regarding our recommendation that DOE conduct or complete studies on the costs and benefits of regional petroleum product reserves, the agency disagreed  DOE stated that it is the agency's position that government owned and operated regional petroleum product reserves are an inefficient and expensive solution to respond to regional fuel supply disruptions  DOE further stated, based on studies done in 2015 that DOE officials told us were pre-decisional and therefore could not be reported, that there are additional concerns associated with government-owned and operated regional refined petroleum product reserves, including little to no storage capacity for lease in commercial terminals and high costs for government owned and operated regional product reserves  However, these same studies took these concerns into account, and concluded that a product reserve in the Southeast would provide significant net economic benefits (benefits minus costs) to the region and the United States in the event of a major hurricane  These studies also concluded that additional analyses are required to inform decisions regarding the potential benefits of a similar reserve on the West Coast  Further, the Quadrennial Energy Review of 2015 recommended that similar analyses be completed for other areas deemed by DOE to be vulnerable to fuel supply disruptions  Therefore, we continue to believe that conducting these analyses, as recommended in the Quadrennial Energy Review of 2015, will provide Congress with information needed to make decisions about regional product reserves  Regarding our recommendation that DOE consider a full range of options for handling potentially excess assets, DOE agreed with the recommendation  DOE stated that in its ongoing study, the agency will include an assessment of disposition options for any potential excess or underutilized SPR assets, to include the need for new legislative authority, as necessary, for the disposition of assets  DOE expects this study to be completed in October 2018  DOE also provided technical comments, which we incorporated, as appropriate  As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix II  In addition to the individual named above, Quindi Franco (Assistant Director), Nkenge Gibson (Analyst-in-Charge), Philip Farah, Ellen Fried, Cindy Gilbert, Greg Marchand, Celia Mendive, Patricia Moye, Camille Pease, Oliver Richard, Dan Royer, Rachel Stoiko, and Marie Suding made key contributions to this report 

ground_truth: News reports in the late 1990s and early 2000s drew attention to a phenomenon sometimes called corporate "inversions" or "expatriations": instances where U.S. firms reorganize their structure so that the "parent" element of the group is a foreign corporation rather than a corporation chartered in the United States. The main objective of these transactions was tax savings, and they involved little to no shift in actual economic activity. Bermuda and the Cayman Islands (countries with no corporate income tax) were the locations of many of the newly created parent corporations. These types of inversions largely ended with the enactment of the American Jobs Creation Act of 2004 (JOBS Act; P.L. 108-357), which denied the tax benefits of an inversion if the original U.S. stockholders owned 80% or more of the new firm. The act effectively ended shifts to tax havens where no real business activity took place. However, two avenues for inverting remained. The act allowed a firm to invert if it has substantial business operations in the country where the new parent was to be located; the regulations at one point set a 10% level of these business operations. Several inversions using the business activity test resulted in Treasury regulations in 2012 that increased the activity requirement to 25%, effectively closing off this method. Firms could also invert by merging with a foreign company if the original U.S. stockholders owned less than 80% of the new firm. If the original U.S. shareholders owned less than 60%, the firm was not considered as inverting. Two features made a country an attractive destination: a low corporate tax rate and a territorial tax system that did not tax foreign source income. The U.K. joined countries such as Ireland, Switzerland, and Canada as targets for inverting when it adopted a territorial tax in 2009. At the same time, the U.K. also lowered its rate (from 25% to 20% by 2015). Inverted firms could reduce worldwide taxes by stripping taxable earnings out of the new U.S. subsidiary, largely through allocating debt to that subsidiary. Soon after, several high-profile companies indicated an interest in merging with a non-U.S. headquartered company, including Pfizer, Chiquita, AbbVie, and Burger King. This "second wave" of inversions again raised concerns about an erosion of the U.S. tax base. Chiquita and AbbVie canceled their plans in the wake of 2014 Treasury regulations, but Burger King and other firms completed merger plans. Pfizer subsequently terminated its planned merger with Allergan after Treasury regulations issued in 2016. Evidence suggests that these Treasury regulations have been an important factor in subsequently decreasing these merger-related inversions. Two policy options had been discussed in response: a general reform of the U.S. corporate tax and specific provisions to deal with tax-motivated international mergers. In December 2017, P.L. 115-97 (popularly known as the Tax Cuts and Jobs Act) lowered the corporate tax rate as part of broader tax reform which some argued would slow the rate of inversions. Other tax reform proposals suggested that if the United States moved to a territorial tax, the incentive to invert would be eliminated. There were concerns that a territorial tax could worsen the profit-shifting that already exists among multinational firms. P.L. 115-97, while moving in some ways to a territorial tax, also instituted a number of measures aimed at combatting profit shifting, including a global minimum tax on intangible income that limited the tax benefits of a territorial tax. The second option is to directly target inversions. The 2017 act included several provisions that discouraged inversions. In addition, further anti-inversion provisions have been introduced, most recently H.R. 5108 and S. 2459 in the 115th Congress, to treat all firms in which former U.S. shareholders have more than 50% ownership (or in which management and control is in the United States) as U.S. firms. These bills also provided that debt could also be allocated to the U.S. member of a worldwide operation in proportion to the U.S. ownership of assets.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: The U S  corporate income tax is based on worldwide economic activity  If all of a corporation's economic activity is in the United States, then tax administration and compliance is relatively straightforward  Many corporations, however, operate in several jurisdictions, which creates complications for tax administration and compliance  Further, corporations may actively choose where and how to organize to reduce their U S  and worldwide tax liabilities  Some of these strategies have been referred to as expatriation, inversions, and mergers  This report begins with a brief discussion of relevant portions of the U S  corporate income tax system before examining how inversions were commonly structured  The report then looks at how Congress and the Department of the Treasury have reduced the benefits of inversions  The report concludes with an examination of remaining methods for inverting and policy options available to prevent or limit these inversions  Achieving tax savings using an inversion became more difficult with the enactment of the American Jobs Creation Act of 2004 (JOBS Act; P L  108-357 )  The JOBS Act denied or restricted the tax benefits of an inversion if the owners of the new company were not substantially different from the owners of the original company  The act also allowed a firm to invert only if it had substantial business operations in the country where the new headquarters was to be located  Although the 2004 legislation largely prevented the types of inversions that drew attention prior to its adoption, several companies have successfully inverted in the past few years by using the substantive business operations mechanism or merging  Treasury regulations have subsequently limited the former mechanism  In spring 2014, several high-profile companies indicated an interest in merging or plans to merge with a non-U S  firm, including Pfizer, Chiquita, and Omnicom (an advertising firm)  News reports indicated that a group of Walgreens investors was also urging such a move  Although the Pfizer and Omnicon mergers and Walgreens headquarters shifts ultimately did not take place, other firms announced mergers in the late spring and early summer  A number of firms in the medical device or pharmaceuticals fields announced mergers or proposed mergers with a shift of headquarters: Medtronics, Salix, AbbVie, Mylan, and Hospira  In August 2014, concern about inversions increased with the announcement that Burger King was in talks to merge with Tim Hortons, a Canadian firm, with the merged firm's headquarters in Canada  An agreement was announced on August 26  Although Burger King is a smaller firm than AbbVie, for example, it is a household name and this proposed inversion garnered much attention  In September 2014, the Treasury Department released a notice of regulatory changes that would restrict some aspects of inversions or their benefits and indicated that other actions may follow  AbbVie, Chiquita, and some other firms canceled their plans in the wake of these Treasury regulations, although new merger proposals were also announced  In November 2015, the Treasury announced additional regulatory restrictions  Although new inversions slowed significantly, others continued but in many cases have been structured to avoid the regulations by reducing ownership below 60%  Most notable of these is the proposed merger of Pfizer with Allergan in November 2015  Pfizer terminated the merger after the release of the April 4, 2016, regulations  This "second wave" of inversions again raised concerns about an erosion of the U S  tax base  While the substantial business avenue appears to have been largely eliminated by Treasury regulations that increased the required share of activity, the option of merging with a smaller foreign company remains  U S  firms may also merge with larger firms, although in this case the tax benefits are less likely to be key factors in the decision to merge  Data released by the Bureau of Economic Analysis indicated that acquisitions by foreigners, which rose substantially in 2015, fell by 15% in 2016, and by 32% in 2017  Some of the largest declines were in countries associated with inversions, such as Ireland, where acquisitions fell from $176 billion in 2015, to $35 billion in 2016, and to $7 billion in 2017  In December 2017, a tax revision ( P L  115-97 ), often called the Tax Cuts and Jobs Act (TCJA), and subsequently referred to as the "Act," made major changes to the corporate tax and the international tax rules, along with some specific revisions aimed at discouraging inversions  Although data for 2018 are not yet available, one planned inversion, by Assurant, Inc , was revised to retain the headquarters in the United States  Ohio-based Dana, Inc  announced plans to merge and move the headquarters to the U K , although the merger would leave the U S  shareholders with less than 60% ownership, and therefore not make them subject to anti-inversion penalties  The United States uses a system that taxes both the worldwide income of U S  corporations and the income of foreign firms earned within U S  borders  All income earned within U S  borders is taxed the same—in the year earned and at statutory tax rates of 21% (reduced from 35% by the Act)  Under pre-Act law, U S  corporate income earned outside the United States was also subject to U S  taxation, though not necessarily in the year earned  This treatment occurred because U S  corporations could defer U S  tax on active income earned abroad in foreign subsidiaries until it was paid, or repatriated, to the U S  parent company as a dividend  To mitigate double taxation, tax due on repatriated income was reduced by the amount of foreign taxes already paid  The Act substituted a new system (Global Intangible Low-Taxed Income, or GILTI) that taxed foreign source income of U S  subsidiaries currently but with an exemption for a deemed return of 10% on tangible assets and a deduction from the remaining income (for 50% of income through 2025 and 37 5% afterward)  It allows a credit for 80% of foreign taxes  The new system also allows U S  firms a deduction for foreign derived intangible income, or FDII, which was designed to reduce tax rates on foreign earnings from the use of intangible assets held in the United States  The deduction is 37 5% of this estimated income through 2025 and 21 875% afterward  Income from certain foreign sources earned by subsidiaries—which generally includes passive types of income, such as interest, dividends, annuities, rents, and royalties, and is referred to as Subpart F income—is generally taxed in the year it is earned and was retained by the Act  Subpart F applies only to shareholders who may be able to influence location decisions at the corporate level  These subsidiaries are referred to as controlled foreign corporations (CFCs)  The Act also adopted the Base Erosion and Anti-Abuse tax (BEAT), an alternative minimum tax with the tax based increased by certain payments to related foreign parties  Its primary focus was to address profit shifting between foreign parents and U S  subsidiaries, but it applies in general  Notably, it excludes payments for costs of goods sold and for costs of services under some pricing rules  One way of shifting profits was to locate debt in high-tax countries  Preexisting thin capitalization rules limited interest to 50% of earnings before the deduction of interest, taxes, and amortization, deprec iation, and depletion (EBITA), although firms with a debt-to-asset rate of 1 5 or less were exempt  The new law adopted much stricter thin capitalization rules to prevent firms from deducting large amounts of interest  The new law lowers the cap to 30% of profits, eliminates the exemption based on the debt-to-asset ratio and, after 2021, measures the cap as a share of profits after amortization, depreciation, and depletion deductions  The Act also adopted some tax provisions targeted at discouraging inversions, which are discussed subsequently  A corporate inversion is a process by which an existing U S  corporation changes its country of residence  After the inversion, the original U S  corporation becomes a subsidiary of a foreign parent corporation  Corporate inversions occur through three different paths: the substantial activity test, merger with a larger foreign firm, and merger with a smaller foreign firm  Regardless of the form of the inversion, the typical result is that the new foreign parent company faces a lower home country tax rate and no tax on the company's foreign-source income  The U S  firm can use inversions to reduce taxes using various techniques  Foreign operations in the future can be formed as subsidiaries of the new foreign parent in a country with a territorial tax, so that future foreign income can be exempt from tax  Accumulated and future foreign income from the U S  company's foreign subsidiaries (which would be taxed by the United States if paid to the parent as a dividend) may be effectively repatriated tax free by lending or otherwise investing in the related foreign firm, such as a low-interest loan to the foreign parent holding company  These borrowed funds could then be used, for example, to pay dividends to shareholders or make loans to the U S  firm  In addition, the combined firm can engage in "earnings stripping": reducing income in the U S  firm by borrowing from the U S  company and increasing interest deductions  For example, a foreign parent may lend to its U S  subsidiary  This intercompany debt does not alter the overall company's debt, but does result in an interest expense in the United States (which reduces U S  taxes paid) and an increased portion of company income being "booked" outside the United States  Royalty payments, management fees, and transfer pricing arrangements are other avenues for earnings stripping, but are thought to be of lesser importance than intercompany debt  In this form of inversion, a U S  corporation with substantial business activity in a foreign company creates a foreign subsidiary  The U S  corporation and foreign subsidiary exchange stock—resulting in each entity owning some of the other's stock  After the stock exchange, the new entity is a foreign corporation with a U S  subsidiary, as the exchange is generally in proportion to the respective company valuations  As this form of inversion does not require any change in the effective control of the corporation, it is referred to as a "naked inversion " In this form of inversion, a U S  corporation would like to bolster its foreign operations and, perhaps, lower its U S  tax  To do so, the U S  corporation merges with a larger foreign corporation, with the U S  shareholders owning a minority share of the new merged company  This results in the effective control of the new company being outside U S  borders  While this form of inversion may be driven by business considerations, tax considerations may also be part of the decision  An example of this can be seen in the following statement by the board of directors of a U S  corporation recommending approval of a merger with a U K  corporation  The board of directors pursued the merger in part because Ensco was headquartered in a jurisdiction that has a favorable tax regime and an extensive network of tax treaties, which can allow the combined company to achieve a global effective tax rate comparable to Pride's competitors  In this case, a U S  firm, Pride, merged with a U K  firm, Ensco, and the headquarters remained in the U K  In this form of inversion, a U S  corporation would like to bolster its foreign operations and lower its U S  tax  To do so, the U S  corporation merges with a smaller foreign corporation, with the U S  shareholders owning a majority share of the new merged company  This merger results in the effective control of the new company staying with the shareholders of the U S  corporations  While this form of inversion may be driven by business considerations, tax considerations may also be part of the decision  An example is the Eaton Cooper merger  The following is an excerpt of a U S  corporation's (Eaton's) press release announcing the acquisition of an Irish company (Cooper), with the company headquartering in Ireland (with a 12 5% tax rate and a territorial system)  At the close of the transaction     Eaton and Cooper will be combined under a new company incorporated in Ireland, where Cooper is incorporated today  The newly created company, which is expected to be called Eaton Global Corporation Plc or a variant thereof ("New Eaton"), will be led by Alexander M  Cutler, Eaton's current chairman and chief executive officer  At the close of the merger, it was expected that the shareholders of the U S  company would control 73% of the combined company, with the shareholders of the Irish company controlling the remaining 27%  The press release notes expected tax benefits from the merger at $165 million in 2016, out of $535 million of total cost savings  In this case, a U S  corporation used a merger to achieve an inversion while its shareholders retained a significant majority of shares  In the late 1990s and early 2000s, news reports drew the attention of policymakers and the public to a phenomenon sometimes called corporate "inversions" or "expatriations": instances where firms that consist of multiple corporations reorganize their structure so that the "parent" element of the group is a foreign corporation rather than a corporation chartered in the United States  Among the more high-profile inversions were Ingersoll-Rand, Tyco, the PXRE Group, Foster Wheeler, Nabors Industries, and Coopers Industries  These corporate inversions apparently involved few, if any, shifts in actual economic activity from the United States abroad, at least in the near term  In particular, inverted firms typically continued to maintain headquarters in the United States and did not systematically shift capital or employment abroad post inversion  Further, Bermuda and the Cayman Islands were the location of many of the newly created parent corporations—jurisdictions that have no corporate income tax but that also do have highly developed legal, institutional, and communications infrastructures  A 2002 study by the U S  Treasury Department concluded that while inversions were not new—the statutory framework making them possible has long been in existence—there had been a "marked increase" in their frequency, size, and visibility  Taken together, these facts suggested that tax savings were one goal of the inversion, if not the primary goal  Beyond taxes, firms engaged in the inversions cited a number of reasons for undertaking them, including creating greater "operational flexibility," improved cash management, and an enhanced ability to access international capital markets  The 2002 Treasury report identified three main concerns about corporate inversions: erosion of the U S  tax base, a cost advantage for foreign-controlled firms, and a reduction in perceived fairness of the tax system  These concerns, along with a growing awareness of inversion transactions, may have resulted in congressional concern and debate about how to address the issues surrounding inversions, culminating with the enactment of an anti-inversion provision (Section 7874) in the American Jobs Creation Act of 2004 (AJCA; P L  108-357 )  The AJCA adopted two alternative tax regimes applicable to inversions occurring after March 4, 2003  The AJCA treats the inverted foreign parent company as a domestic corporation if it is owned by at least 80% of the former parent's stockholders  In these cases, the AJCA would deny the firm any tax benefits of the inversion (i e , it would continue to be taxed on the combined group's worldwide income)  The second regime applies when there is at least 60% continuity of ownership but less than 80%  In this case, the new foreign parent is not taxed like a domestic corporation, but any U S  toll taxes (taxes on gains) that apply to transfers of assets to the new entity are not permitted to be offset by foreign tax credits or net operating losses  The AJCA also exempted corporations with substantial economic activity in the foreign country from the anti-inversion provisions, but it did not define substantial business activity in the statute  Although the 2004 act largely eliminated the generic naked inversions, two alternatives remained that allowed a firm to shift headquarters and retain control of the business: the naked inversion via the business activity exemption, and merger with a smaller company  Using the business activity route would require significant economic operations in the target country  An inversion by merger would require a large firm that would be at least 25% of the size of the U S  firm  The post-2004 approaches to inversions no longer involved countries such as Bermuda and the Cayman Islands, but larger countries with substantial economic activity such as the U K , Canada, and Ireland  The U K , in particular, has become a much more attractive headquarters  Because of freedom of movement rules in the European Union, the U K  cannot have anti-inversion laws, which may have played a role in both moving to a territorial tax and lowering the corporate tax rate  A 2012 report in the Wall Street Journal highlighted some recent moves abroad  This report claimed 10 companies had inverted since 2009, with 6 within the past year or so  This was a small number of companies, but it is useful to look at the methods involved  The Wall Street Journal article identified by name 5 of the 10 companies that had moved abroad recently: Aon, ENSCO, Rowan, Eaton, and DE Master Blenders 1763  (The article also referred to Transocean and Weatherford International, but these were firms that had inverted before the 2004 legislation: Transocean first to the Cayman Islands, and then Switzerland, and Weatherford first to Bermuda, and then Switzerland ) The remaining firm mentioned in the Wall Street Journal article is Eaton  Eaton's move abroad was a merger; it merged with Coopers, a firm effectively operating its headquarters in the United States, but one that had inverted prior to the 2004 law change  An article by Bret Wells identified Aon, ENSCO, and Rowan as having inverted via the substantial business activity exemption (where the only apparent objective is tax savings)  All three moved to the United Kingdom, where a recent move to a territorial tax, as well as decisions in the European Court of Justice that limited their anti-abuse rules, had made their tax system more attractive  The U K  was also in the process of lowering its own corporate rate  Two of the firms are oil drilling firms; drilling in the North Sea might have affected their ability to use this exemption  Aon is an insurance firm  Wells mentions another firm, Tim Hortons, which also used a naked inversion using the substantial business activity exemption in 2009 to relocate to Canada  In doing so, the firm was returning to its origins, as it was founded in Canada  It became an American company when Wendy's acquired it in 1995, but it was subsequently spun off in 2006  DE Master Blenders 1763, like Tim Hortons, was returning to its origins as well (a Netherlands firm), as it was spun off from Sara Lee, which had acquired it in 1978  In response to increased use of the substantial business activity exemption, Treasury Regulations (T D  9592, June 12, 2012) increased the safe harbor for the substantial business activities test from 10% to 25%, effectively closing off this avenue in the future  This action could be done by regulation because the statute did not specify how the substantial business activity test was to be implemented  A number of mergers have either been effectuated or were proposed: Chiquita, Actavis, and Perrigo (the latter two are pharmaceutical firms) moving to Ireland; Valeant Pharmaceuticals and Endo Health Services moving to Canada; and Liberty Global (a cable company) to the U K  Subsequently, the new Irish firm Actavis (itself the result of two prior mergers) merged with Forest Labs  Omnicom (an advertising firm) planned a move to the U K  (after proposed merger with a French firm, creating a Netherlands holding company, resident in the U K  for tax purposes), but has abandoned its merger  Chiquita canceled its plans after Treasury regulations were issued in September 2014  Most of these firms are not household names or industry giants  Thus, perhaps none created as much interest as the attempt by pharmacy giant Pfizer to acquire AstraZeneca with a U K  headquarters, or the urging of some stockholders of Walgreens to invert to Switzerland  Pfizer represented a significant potential loss of future tax revenue, as much as $1 4 billion per year  According to a study by Martin Sullivan, in 2005, when a temporary tax exclusion of 85% of dividends (the repatriation holiday) was in force, Pfizer repatriated $37 billion, the single largest amount of repatriations of any firm  In 2009, Pfizer repatriated $34 billion (and paid U S  taxes on that amount) to finance the acquisition of Wyeth, but earnings abroad grew from $42 billion in 2009 (after the repatriation) to $73 billion by 2012  These earnings have not been repatriated and taxed in the United States  An inversion by Pfizer would, however, result in current shareholders paying capital gains taxes on any stock appreciation when they are converted into shares of the new company  Shares held in IRAs and 401(k)s would not typically owe this tax, but shares owned directly by individuals and in mutual funds would owe tax even if they did not sell their stock  Policymakers and the public remained interested in the issue of inversions through 2014  Although the initial Pfizer merger did not occur, the spate of mergers or proposed mergers in the medical device and pharmaceuticals industries continued in 2014  One example included one of the largest proposed mergers yet, AbbVie's acquisition of Shire, an Irish firm  The announcement of a proposed merger between Burger King and Tim Hortons also generated interest in the issue  As is the case with Chiquita, AbbVie canceled its plans after the issuance of Treasury regulations in September 2014, but Burger King planned to complete its merger and did so on December 12, 2014  Treasury continues to regulate inversions where regulations are possible  For example, in 2014 it took action to close a loophole stemming from the coordination of two sets of regulations—the "Anti-Killer B Regulations" and the "Helen of Troy Anti-Inversion Regulations"—that allowed Liberty Global shareholders to avoid some capital gains taxes  In response to the new wave of inversions, the Treasury Department released a notice of regulatory actions that would restrict inversions and their benefits  Treasury news releases, however, indicated that legislative action is the only way to fully rein in these transactions  Following this notice, several firms announced they were canceling plans to merge, and one firm, Medtronic, announced a change in financing plans (no longer using earnings abroad to pay acquisition costs)  Other firms, however, have announced inversion plans  There is no way to know how many unannounced mergers were, or will be, prevented by these regulations  The regulatory actions address two basic aspects of inversions  One set of changes limits the ability to access the accumulated deferred earnings of foreign subsidiaries of U S  firms  The second regulatory action restricts certain techniques used in inversion transactions that allowed firms to qualify with less than 80% ownership  This regulation is effective for inversions that closed on or after September 22, 2014  The regulations do not prevent inversions via merger and do not address earnings stripping by shifting debt to the U S  firm, although Treasury has indicated future action in this area  In an inversion, the foreign subsidiaries of the original U S  firm remain subsidiaries so that any dividends paid to the U S  parent would be taxed  Regulations also treat other direct investments in U S  property, such as loans to the U S  parent, as dividends  Once a firm has inverted and the U S  firm is now a subsidiary of a foreign parent, there are methods of accessing the earnings of overseas subsidiaries by transactions between the new foreign parent and the U S  firm's foreign subsidiaries  The regulation is intended to address three such methods  First, the regulation prevents the access to funds by, for example, a loan from the U S  company's foreign subsidiary to the new foreign parent (called "hopscotching")  Before the regulation, funds of this type could have been used to pay dividends to the individual shareholders or for other purposes  Under the regulation, acquiring any obligation (such as a loan) or stock of a foreign related person is treated as U S  property subject to tax  Second, the regulation addresses "decontrolling," where the foreign acquiring corporation issues a note or transfer of property for stock in the U S  firm's foreign subsidiaries  If a majority of stock is obtained, the U S  firm's subsidiary is no longer a controlled foreign corporation (CFC) and not subject to Subpart F, which taxes currently certain passive or easily shifted income  However, even a less than majority share can allow partial access to deferred earnings without a U S  tax  This regulation prevents this by treating acquisition of foreign subsidiary stock as acquisition of stock in the U S  parent  Third, the regulation addresses transactions where the foreign acquiring corporation sells stock of the former U S  parent corporation to that U S  parent corporation's CFC in exchange for property or cash  If such a transaction is structured properly, some interpretations of the old regulations would have permitted the income to avoid taxation  The new regulations would prevent that and would apply regardless of the firm's inversion status  A firm can realize the tax benefits of an inversion only if the shareholders of the original U S  firm retain, after the merger, less than 80% of the ownership in the new company  The regulation contains several provisions that limit certain techniques for achieving this goal  The avoidance techniques include inflating the foreign firm, shrinking the U S  firm, and inverting only part of the U S  firm  First, it prevents firms from reaching the less than 80% goal by inflating the size of the foreign merger partner (which must have more than 20% ownership subsequent to the merger) by use of passive assets (e g , an interest bearing bank deposit)  This notice disregards passive assets of the foreign firm if more than 50% of its value is in passive assets  (Banks and financial service companies are excluded ) Second, it prevents firms from shrinking the size of the U S  firm by paying extraordinary dividends before the merger  The notice disregards this reduction in value  Third, it prevents an inversion of part of a U S  company (a "spinversion") by spinning it off to a newly formed foreign corporation, by treating the new "foreign" company as a domestic corporation  After the 2014 Treasury regulations were issued, some firms revised their plans, and the pace of inversions slowed  Some mergers were structured to avoid the anti-inversion rules and Treasury regulations, by an ownership share of less than 60%  Among what appear to be inversions is the merger of telecom firm Arris and Pace (a U K  firm), CF Industries (fertilizer) and OCI NB (a Netherlands firm), Terex with Konecranes (a Finnish firm), and a consolidation of European Coca-Cola bottling firms (one such firm, Coca-Cola Enterprises, was a U S  headquartered firm)  Waste Connections Inc  merged with Progressive Waste Solutions Ltd (a Canadian Firm), with 70% ownership and a headquarters in Canada  Monsanto's proposal to merge with Syngenta (a Swiss firm) was called off  Some mergers that did not qualify as inversions under the tax law also occurred  The most significant in size was the proposed Pfizer merger  On November 23, 2015, Pfizer announced a proposed merger with Allergan, an Irish company, and the move of its headquarters to Ireland  This merger, which would result in the largest pharmaceutical company in the world, is not covered under the anti-inversion rules because Pfizer will own 56% of the value of the new firm  Allergan itself is the product of a merger involving both stock and cash acquisition by Actavis in 2015, with former Allergen shareholders owning a minority of the new company  Thus, this merger as well was not an inversion under the tax law  Actavis, in turn, was a former U S  firm that inverted by merger with Warner Chillcott, an Irish firm, in 2013 (where the former shareholders of the U S  firm acquired 77% of the stock)  Pfizer terminated its merger with Allergen after the April 4, 2016, regulations (discussed below)  Other notable mergers not subject to anti-inversion rules were the acquisition of Salix, a pharmaceutical company, by Valeant (a Canadian company); the acquisition of Auxilium by Endo (after Auxilium backed out of an inversion with Canadian firm QLT); the merger of Cyberonics with Italy's Sorin (to be headquartered in the U K ); and the merger of Broadcom (a chipmaker) with Avago (a Singapore firm)  Information and analytics provider HIS announced a merger with Markit Ltd, a U K  firm, to be headquartered in the U K , but the ownership share of HIS would be less than 60% of the firm  Johnson Controls also merged with Tyco, one of the earlier inverted firms  The 2015 Treasury regulations appear to have more limited consequences for inversions than the 2014 regulations did  Three regulatory changes were made by the notice  First, in the case where the foreign parent is a tax resident of a third country, stock issued by that parent to the existing foreign firm will be disregarded for purposes of the ownership requirement  That change will prevent a U S  firm from merging with a partner and then choosing a tax friendly third country to headquarter in  The second provision would clarify the so called "anti-stuffing" rules, where the foreign firm's size is inflated by adding assets to that firm  The notice clarifies that this rule applies to any assets, not just passive assets  Third, the current business activity exception requires 25% of business activity to be in the foreign country where the new parent is created or organized, but does not require it to be a foreign parent  This rule requires the business activity to be in the foreign parent  It prevents inversion based on the business activity test when the foreign parent has a tax residence in another country without substantial business activities  On April 4, 2016, the Treasury Department issued temporary and proposed regulations formalizing rules contained in Notices 2014-52 and 2015-79 limiting corporate tax inversions, as well as adding new rules addressing inversions and earnings-stripping transactions  In response to these new regulations, the proposed merger between Pfizer and Allergen PLC has been terminated  The April 4, 2016, Treasury regulations put in place several anti-inversion rules that target groups that have engaged in a series of inversion or acquisition transactions as well as a rule that restricts postinversion asset dilution  The temporary regulations target inversion transactions involving a new foreign parent that previously acquired one or more U S  entities in inversions or acquisitions in which the new foreign parent issued stock  These prior acquisitions would generally increase the value of the foreign entity, enabling it to subsequently engage in an inversion transaction with a larger U S  company while remaining below the 60% or 80% ownership thresholds  The temporary regulations disregard stock of the new foreign parent to the extent the value of such stock is attributable to its prior U S  entity acquisitions during the prior three years  According to analysis by Americans for Tax Fairness, the implementation of this rule would have increased Pfizer's share of the merged company to roughly 70% from 56% prior to the rule  Similar to the multiple domestic entity acquisition rule, the multiple-step acquisition rule targets certain inversions that are structured as back-to-back foreign acquisitions  Specifically, it targets transactions that are part of a plan in which a foreign corporation acquires substantially all of the assets of a U S  entity and, subsequent to this first acquisition, a second foreign corporation acquires substantially all of the assets of the first foreign corporation  The temporary regulations, under certain circumstances, treat each acquisition as an acquisition of a U S  entity that may be subject to anti-inversion rules  Unlike the multiple domestic entity acquisition rule, which has a three-year look-back period, the multiple-step acquisition rule can be applied to all acquisitions that are part of the same plan regardless of time  A third rule modified existing regulations to restrict the ability of inverted companies to avoid paying tax on unrealized gains (under Section 965) through a transfer to a controlled foreign corporation (CFC) (under Section 351)  This would address situations where a CFC of an inverted U S  company engages in a postinversion exchange that could dilute a U S  shareholder's indirect interest in the exchanged asset, allowing the U S  shareholder to avoid U S  tax on any realized gain in the asset that is not recognized at the time of the transfer  The rule requires a CFC of an inverted U S  group to recognize all realized gain with respect to any such postinversion Section 351 exchange  The earnings-stripping regulations aim to restrict the ability of foreign-parent groups to shift earnings out of the United States through dividends or other economically similar transactions (under Section 385)  In these cases certain related-party debt will be characterized as equity for tax purposes  The result of equity classification is that interest deductions will be disallowed, and withholding obligations of 30% (or lower rate based on an applicable income tax treaty) could ensue  The regulations do not normally apply for related-party debt that is incurred to fund actual business investment, such as building or equipping a factory  The regulations also require documentation of debt instruments issued and held by certain members of an expanded group to establish that such instruments are properly characterized as debt  The regulations also allow the IRS on audit to treat an instrument issued to a related party as in part debt and in part equity  The final regulations issued on October 21, 2016, scaled back the original regulations in response to the comment period  The final regulations removed the general bifurcation rule that would have allowed a debt instrument to be classified as part debt and part equity and an exemption for debt for foreign issuers  The rules also provided exemptions for cash pools (a pool of cash to be accessed for short-term needs), short-term loans, regulated financial entities, and pass-throughs (firms not taxed as corporations)  The Treasury delayed documentation rules for a year on July 28, 2017  Treasury announced on July 7, 2017, that these debt-equity regulations were to be among eight rules targeted for review  The Treasury issued final regulations for the temporary regulations introduced in April 2016 on July 12, 2018, as TD 9834 with minor changes  Two days after the regulations were issued, Pfizer withdrew from its merger with Allergen, an Irish-based company that was an inverted firm  It appears that this merger was affected by the multiple-entity rule, which has come to be called "serial inversion " Mergers between Shire (Ireland based) and Basalta, and between HIS and Markit Group Inc  (U K  based) went forward  The CF Industries merger with OCI NV (based in the Netherlands) was also called off; Johnson Controls and Tyco went forward  A merger between Konecranes (a Finnish firm) and Terex was scaled down to an acquisition of a share of Terex with the U S  firm owning 25%, thus avoiding the effect of regulations  In May 2016 Cardtronics, Inc , an ATM operator, announced a plan to move to the U K  using the substantial business activities test  Also in May, an oil and gas industry service and technology firm announced a merger with Technip SA (France) to form a U K  company, with each firm holding about half the stock and thus avoiding any of the recent regulations and establishing a new headquarters in another country  In 2017, Praxaire (a U S  industrial gas company) announced a merger with Linde AG (a German gas and technology company), also with each owning half of the new company  As noted in the introduction, statistical data suggest a decline in inversions from 2015 to 2016, and again from 2016 to 2017, and these data are consistent with the limited news reports of major inversions  Pfizer's CEO has recently indicated that deals are on hold generally while tax reform is being considered  The 2017 legislation not only made fundamental changes to the overall treatment of corporate income at home and abroad, but also adopted several provisions specifically aimed at inverted corporations (those with 60% to 80% ownership)  Under the new law, existing untaxed earnings held abroad are taxed under a deemed repatriation rule, but at a lower rate (8% for earnings reinvested in noncash assets and 15 5% for earnings held as cash or cash equivalents)  A special recapture rule applies on deemed repatriations of newly inverted firms  This recapture rule applies if a firm first becomes an expatriated entity at any time during the 10-year period beginning on December 22, 2017  In this case, the tax will be increased from 8% and 15 5% to 35% tax for the entire deemed repatriation, with no foreign tax credit allowed for the increase in tax rate  The additional tax is due on the full amount of the deemed repatriation in the first tax year in which the taxpayer becomes an expatriated entity  BEAT excludes payments which reduce gross receipts with the result that payment for the cost of goods sold is not included under BEAT  An exception applies for firms that invert after November 9, 2017, where payments to a foreign parent or any foreign firm in the affiliated for cost of goods sold is included in BEAT  The constructive ownership rules for purposes of determining 10% U S  shareholders, whether a corporation is a CFC and whether parties satisfy certain relatedness tests, were expanded in the 2017 tax revision  Specifically, the new law treats stock owned by a foreign person as attributable to a U S  entity owned by the foreign person (so-called "downward attribution")  As a result, stock owned by a foreign person may generally be attributed to (1) a U S  corporation, 10% of the value of the stock of which is owned, directly or indirectly, by the foreign person; (2) a U S  partnership in which the foreign person is a partner; and (3) certain U S  trusts if the foreign person is a beneficiary or, in certain circumstances, a grantor or a substantial owner  The downward attribution rule was originally conceived to deal with inversions  In an inversion, without downward attribution, a subsidiary of the original U S  parent could lose CFC status if it sold enough stock to the new foreign parent so the U S  parent no longer had majority ownership  With downward attribution, the ownership of stock by the new foreign parent in the CFC is attributed to the U S  parent, so that the subsidiary continues its CFC status, making it subject to any tax rules that apply to CFCs (such as Subpart F and repatriation taxes under the old law, and Subpart F and GILTI under the new law)  Dividends (like capital gains) are allowed lower tax rates than the rates applied to ordinary income  The rates are 0%, 15%, and 20% depending on the rate bracket that ordinary income falls into  Certain dividends received from foreign firms (those that do not have tax treaties and PFICs ) are not eligible for these lower rates  Dividends paid by firms that inverted after the date of enactment of P L  115-97 are added to the list of those not eligible for the lower rates  In 2004, an excise tax of 15% was imposed on stock compensation received by insiders in an expatriated corporation; the new law increases it to 20%, effective on the date of enactment for corporations that first become expatriated after that date  As noted earlier, there are no aggregate data available yet for 2018, but there are also indications that most tax-motivated inversions had already been discouraged by the 2016 regulations  Considering announcements of individual companies, one planned inversion, by Assurant, Inc  was revised to retain the headquarters in the United States  Ohio-based Dana, Inc  announced plans to merge and move the headquarters to the U K , although the merger would leave the U S  shareholders with less than 60% ownership, and therefore not make them subject to anti-inversion penalties  A recent announcement indicated that the Dana merger was called off  Some firms may be considering reversing their headquarters decisions  The AJCA was successful at limiting a form of inversions, at least initially  In particular, the AJCA stopped the practice of basic "naked inversions," in which little activity or presence in the new jurisdiction is required and the new parent is domiciled in a tax haven  Further, through regulation, Treasury has limited the use of the substantial business activity test safe harbor to invert  Recent activity (as noted above), however, suggests that mergers continued to be used as a vehicle for corporate inversions after these changes  These more recent mergers have increasingly resulted in a U K  parent company (e g , FMC-Technip, HIS-Markit), due to policy decisions by the U K  government  Specifically, the U K  lowered its corporate tax rate and adopted a territorial tax system  In addition, anti-abuse provisions for foreign source income were weakened by the European Union courts  The U K  has also proposed taxing certain intangible income at a 10% rate  (This is referred to as a patent box ) To restrict the occurrence of tax-motivated inversions, both a general reform of the U S  corporate tax and specific provisions to deal with tax-motivated international mergers were discussed  Some important changes were made in 2017; other options remain  Interest in reforming the corporate income tax was long-standing, including calling for explicit accommodation of international concerns  As noted earlier, two aspects of the U S  corporate tax system are particularly relevant to corporate location decisions: the corporate tax rate and the taxation of foreign-source earnings  Taken together, these factors, under prior law, could yield a substantial reduction in taxes paid  In the case of the proposed merger of Forest Laboratories Inc  (a U S  company) and Actavis (an Irish company) in 2014, the tax reduction was estimated to be roughly $100 million per year  Prior to the 2017 changes, the U S  corporate statutory tax rate was higher than both the average statutory rates of the other Organisation for Economic Co-operation and Development (OECD) countries and that of the 15 largest economies in the world  Many asserted that the U S  statutory tax rate needed to be lowered to reduce the incentive for inversion transactions  With the rate lowered from 35% to 21%, the combined central and subnational corporate tax rates are similar to most rates in the OECD  While lowering the corporate tax rate would reduce the incentive to invert, there are reasons to suggest that it would be impractical to reduce the rate to the level needed to stop inversions  Namely, to stop inversions through a reduction in the corporate tax rate would require a U S  corporate tax rate set equal to the lowest tax rate of a destination company, or zero  A lower corporate tax rate alone reduced the incentive for corporate inversions, primarily by reducing the tax rate applied to repatriated earnings  For a company like Pfizer, with large foreign earnings, a rate reduction could yield significantly lower taxes paid  However, as discussed below, the benefit of a lowered rate is negligible relative to the benefit to corporate taxpayers afforded by territorial tax systems, when income earned in low- or no-tax foreign jurisdictions is never subject to U S  tax  Two factors present challenges for lowering the corporate tax rate further  First, if revenue neutrality is a goal, there may not be enough base-broadening provisions with revenue offsets to provide deep cuts in the corporate tax; and, if such offsets were found, they might have their own consequences for investment  Reducing the corporate tax without corresponding base broadening would likely reduce corporate tax revenue, adding to chronic budget deficits  Prior to the 2017 revision, the United States was one of the few countries that had a worldwide tax system and levied a tax on the foreign-source income of domestic corporations  Changing corporate tax residence to a country with a territorial tax system (where foreign earnings would not be taxed at all) was thought to drive inversion decisions  This issue led to proposals for the United States to adopt a territorial tax system to stop inversion transactions  One concern about adopting a territorial tax system is the strain it would likely place on the current transfer pricing system  From this perspective, the worldwide tax system provided a backstop on the amount of profit shifting or base erosion possible, because shifted profits will eventually be repatriated  Under a territorial tax system, this is not the case  Research has found evidence of significant profit shifting, especially related to mobile intellectual property, suggesting a lot of income from foreign sources is really U S  income in disguise  Numerous other issues surround the adoption of a U S  territorial tax  For example, while some supported a territorial tax to eliminate the incentive to keep earnings abroad, others opposed it because it likely discourages domestic investment and activity in the United States  The revisions in 2017 maintained a worldwide system, but with some changes  Income from U S  subsidiaries is taxed on a current basis but at a lower rate and with an exemption for a deemed return on tangible assets  It also provided a subsidy for locating intangible assets with earnings from abroad in the United States  Many of the inverting firms had significant intangible assets, and it is not clear whether this new regime (a lower tax rate but on a current basis) is more or less generous to firms considering inverting  Moving closer to a pure territorial tax, as in the case of a rate reduction, would likely reduce corporate tax revenue and add to current budget pressures unless it is offset by other tax increases, although this effect would be less costly at the lower 21% tax rate  In 2027, GILTI is projected to raise $21 billion  GILTI could be retained and the rate lowered or the temporarily lower rate could be made permanent  There has been some agreement that adopting a territorial tax without some significant anti-abuse provisions could be problematic, as it would likely increase profit shifting abroad by U S  firms  Evidence suggests that administrative remedies were successful at dramatically slowing inversions; the targeted legislative changes in the 2017 Act may have had some impact as well  There are further changes that could be made to discourage inversions  This section discusses the history of these proposals, both legislative and administrative  One approach would be to extend the rate recapture enacted in the 2017 Act for a period longer than 10 years, or to make it apply indefinitely to future inversions  A second alternative is to directly restrict the ability of U S  firms to invert by merger  The President's FY2015, FY2016, and FY2017 budget proposals contained a provision that would have further restricted the use of inversions  The proposal would modify the 80% test enacted in the AJCA to a 50% test and eliminate the 60% test  In effect, this proposal would reduce the percentage of shareholders that are owners of the "old U S  company" and the "new foreign merged company " The proposal would also require that the new foreign corporation be managed and controlled from outside the United States and prohibit transactions where the new foreign company has substantial business activities in the United States  In November 2015, then-Senate Finance Committee Chairman Hatch indicated the possibility of adding an anti-inversion provision to legislation to extend expired provisions  Many of these bills were introduced in the 115 th Congress  H R  1931 (Doggett), the Corporate EXIT Fairness Act, and H R  3434 (Levin) and S  1636 (Durbin, along with a number of cosponsors), the Stop Corporate Inversions Act, would have treated all mergers as U S  firms when the U S  firm's shareholders hold more than 50% or when management and control primarily takes place in the United States  H R  1932 (Doggett) and S  851 (Whitehouse), as with bills introduced in the 114 th Congress, would have included anti-inversion provisions as part of a broader proposal to address tax havens and deferral  H R  3603 (Levin) would have addressed earnings stripping of inverted corporations  H R  3424 (DeLauro) would disallow federal contracts for inverted firms  H R  1451 (Schakowsky) and S  586 (Sanders) would make major changes in the tax treatment of foreign source income and include anti-inversion rules  Following the change in the international system adopted at the end of 2017, Representative Doggett and Senator Whitehouse introduced the "No Tax Break for Outsourcing Act" ( H R  5108 , S  2459 ) which, in addition to other changes, would have treated foreign corporations that are managed and controlled in the United States as domestic corporations and treated inverted firms as U S  firms when the shareholders of the former U S  company own more than 50% of the shares  These bills would have also limited interest deductions in the United States to the proportionate share of the firm's assets  The last proposal (to allocate worldwide interest) was in both the House and Senate versions of the legislation ( H R  1 ; 115 th Congress) in somewhat different form but was not retained in the final legislation  While this proposal was not specifically targeted at inverted firms it would have increased the restrictions that limit earnings stripping  Former President Obama had encouraged Congress to act directly to limit inversions, but had also indicated on August 6, 2014, that administrative changes to limit inversions were under examination  Prior to that announcement, Steve Shay, a Harvard professor and former practitioner and Treasury official, outlined two regulatory actions that he believed could be taken  The first would limit earnings stripping by reclassifying debt as equity due to excessive related party debt in an inversion  (The second provision is no longer relevant under the new international tax regime ) A number of other administrative proposals that have been suggested (such as provisions relating to taxing accumulated deferred earnings) are no longer relevant and others have been adopted in the regulatory changes discussed above  Expanding the scope of Section 7874 (which treats inverted firms as U S  firms) by combining multiple transactions into single ones, or vice versa  The scope of Section 7874 could also be expanded by treating certain stock as disqualified (because it is expected to be held temporarily or because it is accompanied by restrictions on voting rights); this provision was adopted in Treasury regulations; Potentially recognizing accumulated deferred earnings as currently taxable under authority such as Subpart F, Section 367, or other rules (this provision is no longer relevant with the end of deferral, but it may have influenced the decision to tax deferred earnings of newly inverted firms at the full 35% rate for the next 10 years); Issuing regulations that would generally tighten restrictions on interest deductions under the thin capitalization rules of Section 163(j)  These changes would probably apply to corporations in general, and not just to inverted corporations (this change was made in the 2017 tax revision); Stricter regulations under Section 367 to immediately include foreign earnings in the case of actions that attempt to move foreign operations out from under the U S  parent  This would make future earnings of these operations nontaxable; Strengthening and modernizing the effectively connected income rules that determined whether trade or business activity is taking place in the United States by foreign firms; and Closely monitoring the creation of non-U S  subsidiaries owned by the foreign parent after inversion, and ensuring that assets (including intangibles such as inventions, knowhow, etc ) transferred from the U S  firm are transferred at arms-length prices  There is disagreement among experts about whether the types of regulatory changes discussed in this section are feasible or desirable  A number of legislative proposals were advanced in 2014, when the wave of inversions through merger began  Representative Levin, the ranking member of the House Ways and Means Committee, introduced the Stop Corporate Inversions Act of 2014 ( H R  4679 ), which would have reflected the Administration's proposed changes, retroactive to May 8, 2014  The inversion would have not been recognized if the U S  stockholders had 50% of the shares or if 25% of the business activity is in the United States  A companion bill, which would have sunset in two years to provide time for tax reform, was introduced in the Senate by Senator Levin in 2014 ( S  2360 )  The Joint Committee on Taxation estimated the permanent proposal to gain $19 5 billion in revenue over FY2015-FY2024  The two-year proposal would have raise $0 8 billion over the same period  In the 114 th Congress, these legislative proposals were introduced as H R  415 (Levin) and S  198 (Durbin)  Senator Casey proposed an anti-inversion amendment to an education bill ( S  1177 )  In the 114 th Congress, H R  297 (Doggett) and S  174 (Whitehouse) included anti-inversion provisions as part of a broader proposal to address tax haven abuses and restrict the benefits of deferral  S  922 (Sanders) and H R  1790 (Schakowsky) also included anti-inversion provisions, as well as earnings-stripping provisions (discussed below) and broader provisions, including the repeal of deferral  In 2014 a number of legislative proposals were introduced that would limit the tax benefits associated with inversions for certain corporations  For example, H R  1554 (Doggett), H R  3666 (DeLauro), H R  3793 (Maffei), S  268 (Levin), S  1533 (Levin), and S  1844 (Shaheen) would each treat corporations managed and controlled from the United States as domestic corporations regardless of their legal tax home or status as an inverted company  This provision was also included in S  922 (Sanders) and H R  1790 (Schakowsky)  Other proposals in 2014, H R  694 (Schakowsky) and S  250 (Sanders), would have eliminated deferral (taxing foreign source income currently), in addition to limiting the benefits of inversions when management and control continues to reside in the United States  Legislative proposals were also under discussion in 2014 by Representative Levin (announced July 31, 2014) and by Senator Schumer (announced August 14, 2014) to address earnings stripping, where foreign parent companies borrow from the U S  subsidiary to increase interest deductions and reduce taxable income in the United States  Both of these proposals would have tightened the rules allowing interest deductions by reducing the current limit on interest deductions relative to adjusted income from 50% to 25% and repealing an alternative safe-harbor debt-to-equity test  Both proposals would have also eliminated or limited interest carryforwards  The Schumer proposal was intended to apparently apply to inverted firms while the Levin proposal would have applied generally  The Levin proposal would have also limited other transactions between related parties within the firm that allow untaxed investment of funds in the United States  The restrictions on interest in the Levin bill were the same as those initially proposed in the House in 2004  Senator Schumer introduced his proposal, S  2786 , the Corporate Inverters Earnings Stripping Reform Act of 2014  Its limits on interest deductions would have applied to inverted firms where U S  shareholders own more than 50% of the firm  The restriction also would have applied to firms that inverted using the substantial business activities test  The bill had nine Democratic cosponsors; five of them were on the Senate Finance Committee  In the 114 th Congress, S  922 (Sanders) and H R  1790 (Schakowsky) included general earnings-stripping provisions for firms with a foreign parent  Earnings stripping provisions were also addressed in the report of the Senate Finance Committee's working group on Tax Reform  H R  5278 (DeLauro) and S  2704 (Levin), introduced May 30, 2014, would have disallowed awarding federal contracts to inverted firms  These proposals were introduced in the 114 th Congress as H R  1809 (DeLauro) and S  975 (Durbin)  In 2014, Senators Brown and Durbin proposed S  2895 , and Representative Doggett introduced H R  5549 , the Pay What You Owe Before You Go Act, that would have taxed the accumulated deferred earnings of inverting firms  Then Senate Finance Committee Chairman Ron Wyden had proposed having draft legislation in place in September 2014, and also referred to Schumer's earnings-stripping proposal  Senator Wyden had previously announced that any changes would be retroactive to May 8, 2014 


Report 2: 6 million people will migrate from 2011 to 2050 due to the effects of climate change  Challenges in Stability and Security Migration due to climate change is cited as a potential destabilizing factor in Bangladesh by ADB, and others  The low-income population in Bangladesh is dependent on agriculture, making the effects of climate change—including impacts on food security—a particular concern  By 2030, these effects on livelihoods and food security could increase the poverty rate in Bangladesh by 15 percent, as the IPCC has reported  Given the proximity of Bangladesh to India, some individuals may also choose to cross the border  Increased migration to India is a potential concern, according to some sources, as India may not have the resources to absorb large numbers of Bangladeshi migrants  The CNA Corporation, National Security and the Threat of Climate Change (Alexandria, VA: 2007); and Population Council, “Effects of Future Climate Change on Cross-Border Migration in North Africa and India,” Population and Development Review, Vol  36, No  2 (2010)  The effects of climate change in South America vary by region, according to the the Intergovernmental Panel on Climate Change (IPCC) and International Organization for Migration (IOM), as well as potentially impacting migration and stability  On the coast, risks include sea level rise, depletion of fisheries, and coral reef bleaching, according to IOM  Coastal cities with growing populations are particularly vulnerable  Melting glaciers in the Andean mountain region, and increased rainfall are expected to change the distribution of water resources, and impact food production as global demand for food is growing  Desertification and land degradation, complicated by the effects of climate change, are contributing to migration from rural areas to cities in South America, as IOM has reported  An estimated 77 percent of people living in high risk areas in South America are located in cities, according to IOM  IOM predicts that as these people feel the effects of sea level rise and water scarcity, they will migrate from the large coastal cities to smaller urban areas  While South America has experienced economic growth in the last decade, poverty rates remain high, and the effects of climate change, including possible migration, may exacerbate inequalities, putting further pressure on cities to meet the needs of their populations  Water security in particular is expected to disproportionaly impact low-income communities, according to the IPCC  For example, in Brazil, drought in the northeast may increase migration to southern cities that are facing rising sea levels and landslides, with consequences for food, water, and energy security  Observed and Projected Effects of Climate Change Brazil’s cities and rural regions may encounter a range of climate change effects, according to the IPCC and IOM  Rural areas, particularly in the northeast, could experience significant impacts from climate change partly due to poverty rates, and historical vulnerability to drought  Higher temperatures are expected to affect crop yields and household incomes, especially for low-income communities  In northeastern Brazil, temperatures are expected to increase and rainfall to decrease  The northeast could see a 22 percent reduction in precipitation by 2100, according to IPCC projections  Brazil’s coastal areas, including cities, are also vulnerable to rising sea levels, heavy precipitation, flooding, and landslides  The vast majority of Brazil’s population, about 86 percent, lives in cities, many in coastal areas, according to the United Nations Development Program  As their populations have grown, urban areas have extended out  This urban growth in Brazil’s megacities has caused further increases in temperature, rainfall, and landslides  For example, current levels of urbanization in the metropolitan area of Sao Paulo may already be responsible for the 2°C warming observed in the city over the last 50 years, as well as the rise in extreme rainfall, according to the IPCC  The metropolitan area is expected to extend its area 38 percent by 2030  Multiple studies of the effects of urbanization on Sao Paulo’s climate suggest higher temperatures affect convective rainfall, which occurs when warm air rises, condenses to form clouds, and produces extreme rain  Other concerns are the depletion of coral reefs and mangrove forests on Brazil’s coastlines, and decreases in biodiversity  Migration from drought in northeastern Brazil to cities has increased urban populations, putting more people at risk of displacement from flooding and landslides  Migration from the northeast is a historical trend in Brazil, as economic migrants have sought seasonal jobs in more productive agricultural regions, or moved permanently to southern cities  Projected declines in rainfall have led some to predict further increases in migration in northeastern Brazil, as the IPCC has reported  However, remittances from family members who leave Brazil’s northeast support resilience for those who remain and may help to reduce migration  Already environmental factors contribute to migration to cities, including to favelas, informal settlements often constructed in hilly areas and floodplains outside of Brazilian cities  A significant number of the favela residents in Rio de Janeiro are migrants from northeastern Brazil, according to IOM  These new migrants may be at risk of further displacement if heavy rainfall, flooding, and other climate change effects destroy their vulnerable homes  For example, heavy rainfall in April 2010 resulted in landslides across Rio de Janeiro, displacing an estimated 5,000 people, according to a report from the World Bank  Brazil is also a destination for migrants from other countries in the region  Migrants from Venezuela searching for jobs and improved food security have come in growing numbers in recent years, as have migrants from Haiti fleeing a series of natural disasters, as IOM has reported  Challenges in Stability and Security Although Brazil ranks 106th out of 178 countries on the Fragile States Index, the effects of climate change may contribute to challenges with water, food, and energy access according to the IPCC  Decreased rainfall could decrease agricultural productivity, with potential health impacts for poor populations  These conditions are of particular concern in northeastern Brazil, as extreme weather and low crop yields are associated with more violence, according to the IPCC  Brazil also receives about 70 percent of its electricity from hydroelectric power, according the United Nations Environment Programme, and recent droughts caused power cuts across many major cities  Although not linked to the effects of climate change, absorbing a growing number of migrants fleeing political and economic instability in Venezuela may impact the broader region, according to the U S  Department of Defense and the National Intelligence Council  Neighboring countries, including Brazil, may struggle to absorb the influx of migrants  On average, 800 Venezuelans are crossing the border to Brazil every day in need of urgent humanitarian assistance, according to the UNHCR, the UN Refugee Agency  The effects of climate change in the Arctic, including higher temperatures and melting ice, have contributed to shifts in migration across the Arctic, and may have security implications  Increasing temperatures may have a variety of impacts in the Arctic, according to the Intergovernmental Panel on Climate Change (IPCC)  The effects of rising temperatures are disrupting livelihoods and food security, especially for indigenous communities, and opening up untapped natural resources to extraction  Both trends have impacted migration flows in the Arctic  Rising temperatures and melting ice have opened up previously inaccessible waterways in the Arctic, with implications for national security, according to the Department of Defense and others  Greenland, located in the Arctic and considered part of Kingdom of Denmark, exhibits many of these trends  Greenland is experiencing the effects of climate change, including glacial and ice melt, shifts in wildlife distribution, and newly available oil and mineral deposits, among others  The Greenland Ice Sheet covers approximately 80 percent of Greenland’s land mass  The ice sheet’s melting rate is slow, but uncertain  Increases in temperature greater than 1°C may result in the near loss of the entire ice sheet over a millennium and significant sea level rise, according to the IPCC  In the short term, predicting the ice sheet’s melting rate is a challenge as predictions vary in the scientific community  Accurate predictions would support mitigation and adaptation efforts in vulnerable areas  Rising temperatures and shrinking ice cover have shifted the distribution and migration patterns of marine mammals and fish, and impacted food security according to the IPCC and the Arctic Council, an intergovernmental forum for Arctic states  For example, the economy in Paamiut, Greenland, depended primarily on cod fisheries until changing climate conditions caused cod to disappear, and the town was slow to adapt to newly available shrimp  Similarly, fisheries in Disko Bay, Greenland, have struggled to adapt to new conditions  Rising temperatures and the resulting reduction in ice cover have required a shift to fishing from boats in open water instead of hunting and fishing over ice cover  Lastly, warming and ice melt may make significant oil and mineral deposits accessible for extraction in the future  The potential expansion of extraction industries makes environmental sustainability another possible concern  For example, an estimated 31 billion barrels of oil and gas may exist off the coast of Northeast Greenland, according to the Kingdom of Denmark’s 2011-2020 Arctic Strategy  The strategy stresses the importance of assessing and reducing risks to the environment resulting from the exploration and extraction of oil and gas  The effects of climate change are predicted to contribute to internal and external migration in Greenland  For example, young people are increasingly leaving indigenous communities in rural areas for cities in Greenland in search of work, as traditional livelihoods become unsustainable  Greenland is home to a majority indigenous population, primarily Inuit, whose traditional hunting and fishing practices require travel across ice  In the past, people adapted to seasonal changes to support livelihoods by migrating, and the practice was embedded into indigenous social structures  With reduced ice cover, however, migrating to hunt, fish, and maintain connections to community is more dangerous or restricted  Government policies promoting centralized services, such as health care and education, have also played a role in the shift away from migration as a way of life  As a result, indigenous livelihoods are more difficult to maintain, and young people often migrate to towns and cities in Greenland, or to Denmark, for education  At the same time, warmer temperatures have made mineral extraction feasible  As the extraction industry grows, new jobs may draw migrants from outside the Arctic region  In 2011 companies spent $100 million on the exploration of minerals in the Artic, and the estimated number of new mines is expected to require more workers than now live in the region 17 79Currently, more people leave than migrate to Greenland  The local Inuit population in Uummannaq, Greenland relies heavily on ice coverage for fishing and travel by traditional dog-sled  Brookings-LSE Project on Internal Displacement, A Complex Constellation: Displacement, Climate Change and Arctic Peoples (January 30, 2013)  Brookings-LSE Project on Internal Displacement  The effects of climate change on Sub-Saharan Africa vary depending on the region and have impacts on migration and security, according to the International Organization for Migration (IOM)  Coastal areas, for example, in West and East Africa are at risk from sea level rise that could affect major cities  Drought and the risk of desertification in the Sahel is cited as a concern, as is increased rainfall in parts of Central Africa accompanied by lower agricultural yields  As desertification threatens the livelihoods of farmers and herders, and drought makes fishing more challenging, rural dwellers may be more likely to migrate to cities, according to the United Nations Environment Programme (UNEP)  Urbanization and population growth across Sub-Saharan Africa is already making densely populated cities vulnerable to flooding, storms, and erosion, increasing the number of people at risk of displacement by sudden-onset disasters  Climate change effects and changing migration flows across Sub-Saharan Africa may impact access to natural resources and contribute to existing tensions and conflicts, according to UNEP and the Intergovernmental Panel on Climate Change (IPCC)  In Nigeria, the effects of climate change may effect a variety of livelihoods and increase migration south, while also exacerbating existing conflicts  The effects of climate change on Nigeria may impact the country’s agriculture and economy, according to the United States Institute of Peace (USIP)  Higher temperatures and decreased rainfall have contributed to drought in northern Nigeria  Desertification is also a concern  Some regions in northern Nigeria have less than 10 inches of rain a year, an amount that has decreased by 25 percent since the 1980’s, according to USIP  In other areas across Nigeria flooding has resulted in major crop losses, according to UNEP  Rising sea level, water inundation, and erosion are concerns in Nigeria’s coastal areas  Rising sea level is predicted to pose medium to very high risks to Africa’s coastal areas by 2100, according to the IPCC  Future sea level rise could result in the inundation of over 70 percent of the Nigerian coast  A rise of 0 2 meters in sea level could risk billions of dollars in assets, including oil wells near the coast  Even without a rapid rise in sea level, Nigeria’s coastal areas could experience erosion and significant land loss by 2100, as the IPCC has reported  The effects of climate change on livelihoods in northern Nigeria may contribute to migration to the south according to UNEP, while conflict in the north drives separate migration trends  As the effects of climate change make farming and fishing more challenging elsewhere in Nigeria, migration to southern coastal cities may increase  Traditionally, farmers, herders, and fishery workers migrated for temporary employment during the off season, including migration to Nigeria’s cities to work in the oil industry  Permanent migration south as well as to cities may become more common if land suitable for farming decreases  As fish habitats like Lake Chad dry up, fishery workers may also migrate  Larger urban populations on the coast will put more people at risk of sea level rise, water inundation, and erosion, according to the IPCC  A rise in sea level of 1 meter could put over 3 million people at risk of displacement as the IPCC has reported  Herders have also moved further south due to increased drought in northern Nigeria, as UNEP and USIP have reported  A 2010 survey of herdsmen in Nigeria, for example, found that nearly one-third of them had migrated southeast as a result of changes in the natural environment, according to the UNEP  The ongoing conflict with Boko Haram, while not caused by climate change, has further resulted in millions of displaced people across the Lake Chad region, including many Nigerians who have fled to Cameroon, Chad, and Niger  Nigerian refugees at the Minawao camp in Cameroon  Challenges in Stability and Security The effects of climate change, migration, and conflict are interconnected in Nigeria, as USIP has reported  The country is ranked 14th of 178 countries on the Fragile States Index  Events in northwest Africa, including Boko Haram’s attacks in Nigeria, have underscored concerns about the region’s vulnerability to the spread of violent extremism  The effects of climate change may exacerbate these concerns, according to USIP  Nigerians fleeing attacks from Boko Haram in the north have gone to communities in neighboring Chad, Cameroon, and Niger that are already experiencing food shortages due in part to climate change  These neighboring countries as a result have fewer resources to support both their own residents and the newer refugees  Non-state actors may also take advantage of government inaction on the effects of climate change  Boko Haram, for example, has justified its acts of violence by pointing to government failures, according to the USIP  Separately, increased drought in the north may aggravate historic tensions over land and water use between farmers in the south and herders migrating from the north, according to UNEP  Nigeria’s oil fields on the coast, which represent a significant part of the economy, are also at risk from sea level rise  Potential losses in oil revenue could impact Nigeria’s ability to respond to humanitarian crises and conflict at home  Increased violence within its borders could also affect Nigeria’s ability to support regional peacekeeping missions, such as the United Nations Mission in Liberia from 2003 to 2018, where Nigerian troops worked to restore security after a civil war  The effects of climate change in the Middle East and North Africa, including on its desert regions, may impact water access and compound migration and stability challenges, according to the United Nations Environmental Programme (UNEP)  Over 60 percent of the population already experiences high or very high water stress, according to the World Bank  Coupled with unsustainable water use, climate change may further exacerbate challenges with water security  The region continues to experience rising temperatures and declining annual rainfall, trends that contribute to the severity and length of drought, land degradation, and desertification  Decreased water security affects the livelihood and quality of life of farmers in the region, contributing to an increase in their migration to the cities and more urbanization, according to the World Bank  In contrast, many people are expected to migrate away from coastal cities as a result of sea level rise, according to UNEP  These potential migrations would be taking place in a region that already hosts large numbers of migrants such as those displaced by conflict and violence, including 18 percent of the world’s refugees, according to the International Organization for Migration  Challenges in water security may put greater pressure on unstable governments in the region, by intensifying existing tensions and conflicts between populations and their governments as well as between countries that share sources of water  The conflict in Syria illustrates the complex nature of climate change, migration, and conflict in the region, and the challenges to accurately assessing the links among the three, as noted in a technical paper commissioned by the U S  Agency for International Development (USAID)  Rising temperatures and declining rainfall have contributed to recent droughts in Syria, a trend that may continue  The country underwent an extended drought from about 2006 until 2011  During the drought an estimated 60 percent of Syria experienced severe crop failure, and accompanying impacts on food security  Some studies have linked the length and severity of the drought in Syria to climate change, as USAID has reported  Others, however, have pointed to government land and water use policies, combined with the effects of climate change, as responsible for the severity of the drought  Agricultural policies, for example, encouraged farmers to grow water intensive crops like wheat, and supported inefficient irrigation practices, policies which further depleted ground water and made the region more vulnerable to decreases in rainfall linked to climate change  Across the Middle East, the rising temperatures and declining rainfalls of recent decades may worsen, according to the World Bank  If these trends continue, countries in the Middle East, including Syria, could continue to experience periods of severe drought and reduced crop yields  Migration Trends The ongoing conflict in Syria, in which migration due to climate change may have been a contributing factor, has caused large-scale migration to neighboring countries in the Middle East and to Europe  Leading up to the civil war, prolonged drought, among other factors, had increased migration to Syrian cities  Because of the drought, in 2009, over 800,000 Syrians lost their livelihoods in the agricultural sector, while nearly 1 million experienced food insecurity  In 2010, an estimated 200,000 people migrated from farms in rural areas to cities, according to a UN report  The conflict in Syria, which began in 2011, has further displaced large numbers of people within the country and across the Middle East, as we have previously reported At the beginning of the conflict, Syrians, as well as Iraqi and Palestinian refugees who had been residing in Syria, fled mainly to Jordan, Lebanon, and Turkey  As the conflict persisted, refugees fled in larger numbers to Turkey, with the UNHCR reporting that nearly 1 million Syrians sought protection in that country in 2015  Starting that year, a growing number of Syrians risked dangerous sea voyages to reach countries in Europe, such as Greece, Germany, and Sweden  As of June 2017, more than 5 million registered Syrian refugees were living in neighboring countries, including more than 3 million in Turkey, and more than 1 million in Lebanon  Challenges in Stability and Security Sources agree that the Syrian conflict is a significant security challenge that has resulted in large scale migration across the Middle East and to Europe  Yet the link between prolonged drought, rural to urban migration, and the current conflict in Syria is uncertain  Some academic sources argue that the increased strain on urban infrastructure and resources due to the rural to urban migration played a role in Syria’s growing instability  Others highlight the complex nature of the Syrian conflict, pointing to broader political factors that exacerbated resource scarcity and inequality  For example, as the drought intensified, the Syrian government downplayed the severity of the humanitarian crisis, as described in research cited in a technical report commissioned by USAID result, appeals to the international community for emergency aid received minimal support  Combined with existing sectarian divisions, ongoing revolutions across the Middle East, and other factors, the government’s response to the drought may have contributed to the current conflict  Migration and displacement are a concern in the region, according to the Department of Defense and others  The U S  government has provided significant humanitarian assistance for Syrian refugees in the Middle East, including in Lebanon and Jordan, as we have previously reported However, a technical report commissioned by USAID has cautioned that the ongoing conflict in Syria makes it difficult to conduct research and draw conclusions related to climate, migration and conflict  As a The effects of climate change on Oceania, particularly rising seas, may significantly impact coastal populations and increase migration in the future, as the Asian Development Bank (ADB) and the Intergovernmental Panel on Climate Change (IPCC) have reported  Rising temperatures and declining rainfall may also contribute to lower yields from fisheries and agriculture, and a significant decrease in coral reef cover  Extreme weather events, including higher temperatures, wind, and rainfall, have already increased in number and intensity across the region  In the majority of Pacific island nations, of those who migrate, more people leave than come, according to the African, Caribbean, and Pacific Observatory on Migration  The majority of migration in the region is economically driven  In the future, climate change may further impact these migration patterns across the region, according to the IPCC  Climate change has already exacerbated challenges that aid-dependent nations in the region face, restricting livelihoods and resources and contributing to pressures to migrate  The costs of climate change, including a decline in crop yields, a rise in energy demands, and a loss of coastal land, are predicted to be significant  The ADB estimates these costs will reach 12 7 percent of the Pacific regions’ GDP by 2100  Increased migration may also impact political stability and play a role in geopolitical rivalries within the region, according to the IPCC  The effects of climate change, especially rising sea levels, may result in forced migration from the Republic of the Marshall Islands (the Marshall Islands) and have additional impacts on the U S  defense infrastructure on the islands  Observed and Projected Effects of Climate Change Rising sea levels are a grave threat to the Marshall Islands The country consists of islands, low-lying atolls—coral caps sitting on top of submerged volcanoes—making it particularly vulnerable to rising sea levels  On average, the Marshall Islands are 2 meters above sea level  In Majuro, the country’s most populous atoll, observed rates of sea level rise are already twice as fast as the global average  Population centers experience significant flooding, with damage to roads, houses, and infrastructure, especially during La Niña years, which are significantly wetter and more prone to extreme rainfall  Flooding is expected to worsen with rising sea levels, with consequences for the availabity of drinking water  On Roi-Namur island, for example, a 0 4 meter rise in sea level combined with wave-driven flooding is predicted to make groundwater undrinkable year round as early as 2055  This salt water inundation may contaminate already limited groundwater across the Marshall Islands  Lastly, during the 1940s and 1950s, the Marshall Islands was the site of 67 U S  nuclear weapons tests on or near Bikini and Enewetak Atolls  Projected increases in frequency of flooding may negatively impact efforts to contain radioactive material stored on Runit Island  A number of factors have increased migration from the Marshall Islands, including to the United States  In 1986, the United States entered into a compact of free association with the country that allowed its citizens to migrate to the United States, as we have previously reported  As a result, more than 20,000 Marshallese now live in the United States People are more likely to migrate abroad as the effects of climate change on the Marshall Islands—including rising sea levels—increasingly impact livelihoods The threat of mass displacement and forced migration is also a concern, as the International Organization for Migration has reported  However, Marshallese culture has a strong connection to the land, which means that many view migration as a last resort  For people still living in the Marshall Islands, they face overpopulation in urban centers and displacement by sudden-onset disasters like cyclones and flooding  Factors influencing people deciding to move abroad include displacement, lack of economic opportunity—sometimes exacerbated by climate change—and limited access to health care  Climate change is likely to increase risks to public health in the country Increased rainfall, for instance, may expand mosquito breeding grounds, raising the risk of diseases like dengue fever  The country’s limited health care system may further contribute to migration from the islands  Challenges in Stability and Security In the future, the Marshall Islands may become uninhabitable  This prospect threatens the existence of the Marshall Islands as a sovereign state, as well as the United States defense facilities located on the islands  The total loss of land could result in the Marshall Islands being uninhabitable, which raises problems of migration, resettlement, cultural survival, and sovereignty  Relocation of the population of the Marshall Islands, and of other Pacific Island nations at risk of rising seas, could cause significant geopolitical challenges The Marshall Islands are also of strategic importance for the United States  Under the Compact of Free Association, the United States has permission to use several islands— including Kwajalein Atoll, the location of the Ronald Reagan Ballistic Missile Defense Test Range—until 2066  The country’s proximity to the equator makes the Marshall Islands ideal for missile defense and space work  Yet the island’s defense infrastructure and operations are at significant risk due to rising sea levels, flooding, and diminishing supplies of potable water  As the Department of Defense has noted, climate change will have serious implications for the department’s ability to maintain its infrastructure and ensure military readiness in the future  DOD, 2014 Climate Change Adaptation Roadmap (Alexandria, VA: June 2014)  The effects of climate change on Central America and the Caribbean may increase migration and exacerbate poverty rates, as the National Intelligence Council has reported  The climate in Central America and the Caribbean is predicted to be warmer and dryer  The Caribbean’s extensive coastlines and low-lying areas are vulnerable to sea level rise and an increase in sudden-onset disasters, including hurricanes and storm surges  Drought is a particular concern in Central America, where declines in rainfall have reduced crop yields and threatened livelihoods in recent years  Some evidence shows that drought in parts of Central America has contributed to migration north, including to the United States  Population growth, especially in coastal cities, has increased the number of people at risk during hurricane season, and the number and intensity of hurricanes have grown in recent years  Some attribute the increase in intensity to higher sea surface temperatures caused by climate change  However, there remains debate about long term hurricane trends  Recent hurricanes have caused displacement, and significant losses and damages—including to infrastructure—across the region  The depletion of coral reefs and mangrove trees, natural barriers to coastal erosion and flooding, has exacerbated vulnerability to storms in coastal areas  Climate change is likely to have negative impacts on tourism in the Caribbean, where the industry is an important part of the economy, according to Inter-American Development Bank  Climate change impacts on the economy may make it increasingly difficult for governments to reduce poverty and move towards environmental sustainability  Haiti’s geography, location, and high poverty rates make the country especially vulnerable  Haiti is highly vulnerable to climate change effects, partly due to its long coastline Hurricanes routinely make landfall in the country, and increases in rainfall and wind speeds associated with hurricanes are likely  Severe hurricanes, including Hurricane Matthew in September 2016, have hit Haiti in recent years  Hurricane Matthew was the first category 4 storm in Haiti since 1964  Damage from severe flooding and severe winds during the hurricane affected over 2 million people and created significant food security and public health challenges  Significant deforestation has further exacerbated Haiti’s vulnerability to hurricanes, as trees previously provided a natural barrier to the erosion that strong winds and more rainfall can cause  Rising temperature and highly variable rainfall have led to extreme drought and flash flooding, according to the U S  Agency for International Development (USAID) 32 2 These trends decrease crop yields, affecting the livelihoods of farmers, and threaten water access  Projected increase in temperature and decreases in rainfall are likely to intensify drought in Haiti’s interior  USAID, Haiti: Environment and Climate Change Fact Sheet (January 2016)  Migration Trends Slow-onset climate events, such as drought, and rising sea levels, and sudden-onset events, including earthquakes, affect Haiti, according to the International Organization for Migration (IOM)  Haiti is also particularly exposed to extreme weather events, such as hurricanes, which can lead to displacement  In January 2010, a catastrophic earthquake in Haiti killed an estimated 230,000 people and left close to 1 5 million people homeless  According to IOM, the recurrence of environmental disruptions increases risks and vulnerabilities  When Hurricane Sandy struck Haiti in October 2012, the country had still not recovered from the 2010 earthquake  The worsening of climate change effects around the world, particularly in low-income countries, may increase the number of people wanting to immigrate to the United States, where approximately 700,000 Haitians live today Remittances from family members living outside Haiti make up a significant portion of the economy, at 24 7 percent of GDP  The majority of these remittances come from the United States, as we have previously reported 34 4Remittances may support resilience to climate change effects as migrants send money home for disaster recovery and adaptation  Challenges in Stability and Security Haiti, the poorest country in the western hemisphere, has experienced political instability for most of its history, and ranks 12th of 178 on the Fragile States Index  The government has a low capacity to respond to additional challenges like those related to climate change, according to USAID  The Ministry of Environment, for example, is a relatively new organization within the Haitian government, and local and regional governments have a limited ability to enforce environmental laws and regulations  The United States has provided substantial aid to Haiti, both in disaster response and broader development projects  Official development assistance for Haiti in 2015, for instance, totaled slightly more than $1 billion  According to a January 2018 UN report, 2 8 million people were still in need of humanitarian assistance  GAO, Remittances To Fragile Countries: Treasury Should Assess Risks from Shifts to Non-Banking Channels, GAO-18-313 (Washington, D C , March 8, 2018)  The Department of State’s Bureau of Oceans and International Environmental and Scientific Affairs (State/OES) provided about $78 million in adaptation funding from the Global Climate Change Initiative for eight projects for fiscal years 2014 through 2017 (see table 2)  The Global Climate Change Initiative was established in 2010 to promote resilient, low- emission development, and integrate climate change considerations into U S  foreign assistance and was divided into three main programmatic initiatives: (1) Adaptation assistance, (2) Clean Energy assistance, and (3) Sustainable Landscapes assistance  The primary purpose of these contributions to the LDCF was to address the adaptation needs of the least developed countries, which are especially vulnerable to the adverse impacts of climate change  The LDCF financed the preparation and implementation of National Adaptation Programs of Action, which identify a country’s priorities for adaptation actions  Initial grant to the National Adaptation Plans Global Network  The network is focused on increasing the capacity of national and subnational governments to identify and assess climate risks, integrate these risk considerations in sector planning, develop a pipeline of projects to address risks, identify and secure funding for projects, and track progress toward resilience targets  Colombia, East Caribbean (Guyana, Saint Lucia, Saint Vincent and the Grenadines), Ethiopia, Peru, South Africa, Uganda, West Africa (Côte d’Ivoire, Ghana, Guinea, Sierra Leone, Togo) and, under current consideration, East Caribbean (Dominica, Suriname), and Pacific (Fiji, Kiribati, Tuvalu) The cost amendment intensified the technical support on National Adaptation Plans to select countries dependent upon specific country adaption needs  In addition, the cost amendment continued the learning and progress from the initial grant  Implemented through the Department of Treasury, this funding supported a Treasury grant to the Pacific Catastrophe Risk Assessment and Financing Initiative Multi Donor Trust Fund at the World Bank  This activity established the Pacific Catastrophe Risk Insurance Foundation and the Pacific Catastrophe Risk Insurance Company, among other things  The goal of PIER is to increase private sector investment in resilience to climate change in eight developing countries  The first phase of the project will assess and identify opportunities for private investment in resilience, as well as build public and private capacity for climate risk assessment in all the countries  In the second phase, public and private sector partners will develop and pilot climate risk-reduction investment models in four of the countries  The third phase will publicize the piloted investment models and lessons learned among the eight countries  Implemented through the National Oceanic and Atmospheric Administration, this activity aims to implement a capacity-building partnership with India to promote effective climate resilient decision making at national, state, and local levels  In addition to the contacts named above, the following individuals made key contributions to this report: Miriam Carroll Fenton (Assistant Director), Kristy Williams (Assistant Director), Rachel Girshick (Analyst-in-Charge), Nancy Santucci, Miranda Cohen, Aldo Salerno, Neil Doherty, and Judith Williams  Alexander Welsh, Justin Fisher, and Joseph Thompson provided technical and other support  Climate Change Adaptation: DOD Needs to Better Incorporate Adaptation into Planning and Collaboration at Overseas Installations  GAO-18-206  Washington, D C : November 13, 2017  Compacts Of Free Association: Actions Needed to Prepare for The Transition of Micronesia and the Marshall Islands to Trust Fund Income  GAO-18-415  Washington, D C : May 17, 2018  Remittances to Fragile Countries: Treasury Should Assess Risks from Shifts to Non-Banking Channels  GAO-18-313  Washington, D C : March 8, 2018  Syrian Refugees: U S  Agencies Conduct Financial Oversight Activities for Humanitarian Assistance but Should Strengthen Monitoring  GAO-18-58  Washington, D C : October 31, 2017  International Food Assistance: Agencies Should Ensure Timely Documentation of Required Market Analyses and Assess Local Markets for Program Effects  GAO-17-640  Washington, D C : July 13, 2017  High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others  GAO-17-317  Washington, D C : February 15, 2017  Federal Disaster Assistance: Federal Departments and Agencies Obligated at Least $277 6 Billion during Fiscal Years 2005 through 2014  GAO-16-797  Washington, D C : September 22, 2016  Coast Guard: Arctic Strategy Is Underway, but Agency Could Better Assess How Its Actions Mitigate Known Arctic Capability Gaps  GAO-16-453  Washington, D C : July 12, 2016  Climate Information: A National System Could Help Federal, State, Local, and Private Sector Decision Makers Use Climate Information  GAO-16-37  Washington, D C : November 23, 2015  Hurricane Sandy: An Investment Strategy Could Help the Federal Government Enhance National Resilience for Future Disasters  GAO-15-515  Washington, D C : July 30, 2015  High-Risk Series: An Update  GAO-15-290  Washington, D C : February 11, 2015  Standards for Internal Control in the Federal Government  GAO-14-704G  Washington, D C : September 10, 2014  Combating Terrorism: U S  Efforts in Northwest Africa Would Be Strengthened by Enhanced Program Management  GAO-14-518  Washington, D C : June 24, 2014  Climate Change Adaptation: DOD Can Improve Infrastructure Planning and Processes to Better Account for Potential Impacts  GAO-14-446  Washington, D C : May 30, 2014  Extreme Weather Events: Limiting Federal Fiscal Exposure and Increasing the Nation’s Resilience  GAO-14-364T  Washington, D C : February 12, 2014  Climate Change: State Should Further Improve Its Reporting on Financial Support to Developing Countries to Meet Future Requirements and Guidelines  GAO-13-829  Washington, D C : September 19, 2013  High-Risk Series: An Update  GAO-13-283  Washington, D C : February 14, 2013  International Climate Change Assessments: Federal Agencies Should Improve Reporting and Oversight of U S  Funding  GAO-12-43  Washington, D C : November 17, 2011  Climate Change Adaptation: Federal Efforts to Provide Information Could Help Government Decision Making  GAO-12-238T  Washington, D C : November 16, 2011  Foreign Relation: Kwajalein Atoll Is the Key U S  Defense Interest in Two Micronesian Nations, GAO-02-119  Washington D C : January 22, 2002 

ground_truth: The effects of climate change, combined with other factors, may alter human migration trends across the globe, according to the International Organization for Migration. For example, climate change can increase the frequency and intensity of natural disasters, causing populations to move from an area. Climate change can also intensify slow-onset disasters, such as drought, crop failure, or sea level rise, potentially altering longer-term migration trends. GAO was asked to review how U.S. agencies address climate change as a potential driver of global migration. For State, USAID, and DOD, this report (1) describes executive branch actions related to climate change and migration from fiscal years 2014 through 2018; (2) examines the extent to which the agencies discussed the potential effects of climate change on migration in their plans and risk assessments; and (3) describes agency activities on the issue. GAO analyzed documents on administration priorities; reviewed agency plans, risk assessments, and documentation of agency activities; and interviewed agency officials. From fiscal years 2014 through 2018, a variety of executive branch actions related to climate change—such as executive orders and strategies—affected the Department of State (State), the U.S. Agency for International Development (USAID), and the Department of Defense (DOD), including their activities that could potentially address the nexus of climate change and migration. For example, a fiscal year 2016 presidential memorandum—rescinded in 2017—required agencies to develop implementation plans to identify the potential impact of climate change on human mobility, among other things. In general, however, climate change as a driver of migration was not a focus of the executive branch actions. For example, a fiscal year 2014 executive order—also rescinded in 2017—requiring agencies to prepare for the impacts of climate change did not highlight migration as a particular concern. State, USAID, and DOD have discussed the potential effects of climate change on migration in agency plans and risk assessments. For example, State and USAID required climate change risk assessments when developing country and regional strategies, and a few of the strategies reviewed by GAO identified the nexus of climate change and migration as a risk. However, State changed its approach in 2017, no longer providing missions with guidance on whether and how to include climate change risks in their integrated country strategies. In doing so, State did not include in its 2018 guidance to the missions any information on how to include climate change risks, should the missions choose to do so. Without clear guidance, State may miss opportunities to identify and address issues related to climate change as a potential driver of migration. The three agencies have been involved in climate change related activities but none were specifically focused on the nexus with global migration. For example, USAID officials said that the agency's adaptation efforts, such as its Pastoralist Areas Resilience Improvement through Market Expansion project in Ethiopia, were the most likely to include activities, such as enhancing resilience, that can indirectly address the issue of climate change as a driver of migration. GAO recommends that State provide missions with guidance that clearly documents its process for climate change risk assessments for country strategies. In commenting on a draft of this report, State indicated that it would update its integrated country strategy guidance and will specifically note that missions have the option to provide additional information on climate resilience and related topics.