Climate Change: Potential Economic Costs and Opportunities to Reduce Federal Fiscal Exposure
Released: 2019-12-19T00:00:00

Letter

Information on the Potential Economic Effects of Climate Change in the United States Could Help Federal Decision Makers Better Manage Climate Risks

We reported in September 2017 that while estimates of the economic effects of climate change are imprecise due to modeling and information limitations, they can convey useful insight into broad themes about potential damages in the United States. We also reported that according to the two national-scale studies available at the time that examined the economic effects of climate change across U.S. sectors, potential economic effects could be significant and these effects will likely increase over time for most of the sectors analyzed. For example, for 2020 through 2039, one of the studies estimated from $4 billion to $6 billion in annual coastal property damages from sea level rise and more frequent and intense storms.

In addition, the national-scale studies we reviewed and several experts we interviewed for the September 2017 report suggested that potential economic effects could be unevenly distributed across sectors and regions. For example, one of the studies estimated that the Southeast, Midwest, and Great Plains regions will likely experience greater combined economic effects than other regions, largely because of coastal property damage in the Southeast and changes in crop yields in the Midwest and Great Plains (see fig. 1). This is consistent with the findings of the Fourth National Climate Assessment. For example, according to that assessment, the continued increase in the frequency and extent of high- tide flooding due to sea level rise threatens America’s trillion-dollar coastal property market and public infrastructure sector.

As we reported in September 2017, information on the potential economic effects of climate change could help federal decision makers better manage climate risks, according to leading practices for climate risk management, economic analysis we reviewed, and the views of several experts we interviewed. For example, such information could inform decision makers about significant potential damages in different U.S. sectors or regions. According to several experts and our prior work, this information could help federal decision makers identify significant climate priorities as an initial step toward managing climate risks. Such a first step is consistent with leading practices for climate risk management and federal standards for internal control. For example, leading practices from the National Academies call for climate change risk management efforts that focus on where immediate attention is needed. As noted in our September 2017 report, according to a 2010 National Academies report, other literature we reviewed, and several experts we interviewed, to make informed choices, decision makers need more comprehensive information on economic effects to better understand the potential costs of climate change to society and begin to develop an understanding of the benefits and costs of different options for managing climate risks.

The Federal Government Faces Fiscal Exposure from Climate Change Risks, but Our Past Work Shows an Absence of Government-Wide Strategic Planning

The federal government faces fiscal exposure from climate change risks in a number of areas, and this exposure will likely increase over time, as we concluded in September 2017. In the March 2019 update to our High-Risk List, we summarized our previous work that identified several of these areas across the federal government, including programs related to the following:

Disaster aid. The rising number of natural disasters and increasing reliance on federal assistance are a key source of federal fiscal exposure, and this exposure will likely continue to rise. Since 2005, federal funding for disaster assistance has been at least $450 billion. In September 2018, we reported that four hurricane and wildfire disasters in 2017 created an unprecedented demand for federal disaster resources and that Hurricanes Harvey, Irma, and Maria ranked among the top five costliest hurricanes on record. Subsequently, the fall of 2018 brought additional catastrophic disasters such as Hurricanes Florence and Michael and devastating California wildfires, with further needs for federal disaster assistance. Disaster costs are projected to increase as certain extreme weather events become more frequent and intense due to climate change—as USGCRP observed and projected. We reported in July 2015 that the federal government’s fragmented and reactive approach to funding disaster resilience presented challenges to effective reduction of climate-related risks. In addition, our prior work found that the Federal Emergency Management Agency’s (FEMA) primary indicator for determining whether to recommend that a jurisdiction receive disaster assistance—which was set in 1986—is artificially low because it does not accurately reflect the ability of state and local governments to respond to disasters. Without an accurate assessment of a jurisdiction’s capability to respond to a disaster without federal assistance, we found that FEMA runs the risk of recommending that the President award federal assistance to jurisdictions that have the capability to respond and recover on their own.

Federal insurance for property and crops. The National Flood Insurance Program (NFIP) and the Federal Crop Insurance Corporation are sources of federal fiscal exposure due, in part, to the vulnerability of insured property and crops to climate change. These programs provide coverage where private markets for insurance do not exist, typically because the risk associated with the property or crops is too great to privately insure at a cost that buyers are willing to accept. From 2013 to 2017, losses paid under NFIP and the federal crop insurance program totaled $51.3 billion. Federal flood and crop insurance programs were not designed to generate sufficient funds to fully cover all losses and expenses, which means the programs need budget authority from Congress to operate. NFIP, for example, was about $21 billion in debt to the Department of the Treasury as of April 2019. Further, the Congressional Budget Office estimated in May 2019 that federal crop insurance would cost the federal government an average of about $8 billion annually from 2019 through 2029.

Operation and management of federal property and lands. The federal government owns and operates hundreds of thousands of facilities and manages millions of acres of land that could be affected by a changing climate and represent a significant federal fiscal exposure. For example, the Department of Defense (DOD) owns and operates domestic and overseas infrastructure with an estimated replacement value of about $1 trillion. In September 2018, Hurricane Florence damaged Camp Lejeune and other Marine Corps facilities in North Carolina, resulting in a preliminary Marine Corps repair estimate of $3.6 billion. One month later, Hurricane Michael devastated Tyndall Air Force Base in Florida, resulting in a preliminary Air Force repair estimate of $3 billion and upwards of 5 years to complete the work. In addition, we recently reported that the federal government manages about 650 million acres of land in the United States that could be vulnerable to climate change, including the possibility of more frequent and severe droughts and wildfires. Appropriations for federal wildland fire management activities have increased considerably since the 1990s, as we and the Congressional Research Service have reported.

As we reported in October 2019, our past work shows an absence of government-wide strategic planning for climate change. Specifically, our past work identifies limitations related to strategic planning for climate change that include a lack of coordination, prioritization, and consolidation of strategic priorities. For example, we reported in October 2009 that the federal government’s emerging climate resilience activities were carried out in an ad hoc manner and were not well coordinated across federal agencies. In May 2011, we reported that federal officials did not have a shared understanding of strategic government-wide priorities related to climate change. In the same report, we found that there was not a consolidated set of strategic priorities integrating climate change programs and activities across the federal government.

In our March 2019 High-Risk Update, we reported that one area of government-wide action needed to reduce federal fiscal exposure is in the federal government’s role as the leader of a strategic plan that coordinates federal efforts and informs state, local, and private sector action. For our 2019 High-Risk Update, we assessed the federal government’s progress since 2017 related to climate change strategic planning against five criteria and found that the federal government had not met any of the criteria for removal from the high-risk list. Specifically, since our 2017 high-risk update, four ratings regressed to “not met” and one remained unchanged as “not met.” (See fig. 2.) We have made 62 recommendations related to the climate change high-risk area, 17 of which address improving federal climate change strategic planning. As of August 2019, no action had been taken toward 14 of those 17 recommendations—one dating back to 2003.

Federal Investments in Resilience to Climate Change Impacts Have Been Limited

Although the federal government faces fiscal exposure to climate change, its investments in resilience to climate change impacts have been limited. One way to reduce federal fiscal exposure is to enhance resilience by reducing or eliminating long-term risk to people and property from natural hazards. For example, in September 2018 we reported that elevated homes and strengthened building codes in Texas and Florida prevented greater damages during the 2017 hurricane season. In addition, one company participating in a 2014 forum we held on preparing for climate- related risks noted that for every dollar it invested in resilience efforts, the company could prevent $5 in potential losses. Finally, a 2018 interim report by the National Institute of Building Sciences examined a sample of federal grants for hazard mitigation. The interim report estimated approximate benefits to society (i.e., homeowners and communities) in excess of costs for several types of resilience projects through the protection of lives and property, and prevention of other losses, though precise benefits are uncertain. According to the interim report, for every grant dollar the federal government spent on resilience projects, over time, society is estimated to accrue benefits amounting to the following:

About $3 on average from projects addressing the effects of fire in the wildland urban interface, with most benefits (approximately 70 percent) coming from the protection of property (i.e., avoiding property losses).

About $5 on average from projects to address hurricane-force and tornado-force winds, with most benefits (approximately 90 percent) coming from the protection of lives. This includes avoiding deaths, nonfatal injuries, and causes of posttraumatic stress.

About $7 on average from projects that buy out buildings prone to riverine flooding, with most benefits (approximately 65 percent) coming from the protection of property.

The interim report also projected that society could accrue benefits amounting to about $11 on average for every dollar invested in designing new buildings to meet the 2018 International Building Code and the 2018 International Residential Code—the model building codes that the International Code Council developed—with most benefits (46 percent) coming from the protection of property.

We reported in October 2009 that the federal government’s activities to build resilience to climate change were carried out in an ad hoc manner and were not well coordinated across federal agencies. We reported similar findings in October 2019. Federal agencies have included some of these activities within existing programs and operations—a concept known as mainstreaming. For example, the Fourth National Climate Assessment reported that the U.S. military integrates climate risks into its analysis, plans, and programs, with particular attention paid to climate effects on force readiness, military bases, and training ranges. However, according to the Fourth National Climate Assessment, while a significant portion of climate risk can be addressed by mainstreaming, the practice may reduce the visibility of climate resilience relative to dedicated, stand-alone approaches and may prove insufficient to address the full range of climate risks.

In addition, as we reported in March 2019, the Disaster Recovery Reform Act of 2018 (DRRA) was enacted in October 2018 and could improve state and local resilience to disasters. DRRA, among other things, allows the President to set aside, with respect to each major disaster, a percentage of the estimated aggregate amount of certain grants to use for predisaster hazard mitigation and makes federal assistance available to state and local governments for building code administration and enforcement. However, it is too early to tell what impact implementing the act will have on state and local resilience.

The federal government has made some limited investments in resilience, and DRRA could enable additional improvements at the state and local levels. However, we reported in October 2019 that the federal government does not have a strategic approach for investing in climate resilience projects—that is, an intentional, crosscutting approach in which the federal government identifies and prioritizes projects for the purpose of enhancing climate resilience. Federal agencies may take actions to invest in projects with potential climate resilience benefits related to their own mission areas using funds from federal programs designed for other purposes. In addition, the National Climate Assessment provides high- level information on what is known about observed and projected climate risks in the United States. However, no federal entity looks holistically at the federal government’s investments to strategically prioritize projects to ensure that they address the nation’s most significant climate risks and provide the highest net benefits relative to other potential projects.

Further, we reported in September 2017 that the federal government had not undertaken strategic government-wide planning to manage significant climate risks before they become fiscal exposures. As an initial step in managing climate risks, most of the experts we interviewed for the September 2017 report told us that federal decision makers should prioritize risk management efforts on significant climate risks that create the greatest fiscal exposure.

Moreover, several stakeholders told us that the federal government’s emphasis has been on funding postdisaster efforts instead of funding resilience projects before a disaster occurs. This is consistent with findings from our July 2015 report that most federal funding for hazard mitigation is only available after a disaster. In addition, according to FEMA officials, some of the agency’s hazard mitigation programs are designed to empower state and local governments to determine their mitigation funding priorities, and these state and local priorities may or may not align with the federal interest.

Finally, although we did not identify a government-wide strategic approach specifically for investing in climate resilience projects, the National Mitigation Investment Strategy—a national effort under way to plan for predisaster resilience investments—represents a potential cross- agency vehicle for climate resilience planning. However, the strategy does not specifically address climate change or identify and prioritize specific climate resilience projects.

The Federal Government Could Reduce Its Fiscal Exposure by Focusing and Coordinating Federal Efforts

As we reported in March 2019, the federal government could reduce its fiscal exposure to climate change by focusing and coordinating federal efforts. However, the federal government is currently not well organized to address the fiscal exposure presented by climate change, partly because of the inherently complicated and crosscutting nature of the issue. We have made a total of 62 recommendations related to limiting the federal government’s fiscal exposure to climate change over the years, 12 of which have been made since February 2017. As of December 2018, 25 of these recommendations remained open. In describing what needs to be done to reduce federal fiscal exposure to climate change, our March 2019 High-Risk Report discusses many of the open recommendations.Implementing these recommendations could help reduce federal fiscal exposure. Several of them, including those highlighted below, identify key government-wide efforts needed to help plan for and manage climate risks and direct federal efforts toward common goals, such as improving resilience.

Develop a national strategic plan: In May 2011, we recommended that appropriate entities within the Executive Office of the President (EOP), including the Office of Management and Budget, work with agencies and interagency coordinating bodies to establish federal strategic climate change priorities that reflect the full range of climate- related federal activities, including roles and responsibilities of key federal entities.

Use economic information to identify and respond to significant climate risks: In September 2017, we recommended that the appropriate entities within EOP use information on the potential economic effects of climate change to help identify significant climate risks facing the federal government and craft appropriate federal responses. Such federal responses could include establishing a strategy to identify, prioritize, and guide federal investments to enhance resilience against future disasters.

Provide decision makers with the best-available climate information: In November 2015, we reported that federal efforts to provide information about climate change impacts did not fully meet the climate information needs of federal, state, local, and private sector decision makers, which hindered their efforts to plan for climate change risks. We reported that these decision makers would benefit from a national climate information system that would develop and update authoritative climate observations and projections specifically for use in decision-making. As a result, we recommended that EOP (1) designate a federal entity to develop and periodically update a set of authoritative climate observations and projections for use in federal decision-making, which other decision makers could also access, and (2) designate a federal entity to create a national climate information system with defined roles for federal agencies and nonfederal entities with existing statutory authority.

Consider climate information in design standards: In November 2016, we reported that design standards, building codes, and voluntary certifications established by standards-developing organizations play a role in ensuring the resilience of infrastructure to the effects of natural disasters. However, we reported that these organizations faced challenges in using forward-looking climate information that could help enhance the resilience of infrastructure. As a result, we recommended in the November 2016 report that the Department of Commerce (Commerce), acting through the National Institute of Standards and Technology—which is responsible for coordinating federal participation in standards organizations— convene federal agencies for an ongoing government-wide effort to provide the best-available forward-looking climate information to standards-developing organizations for their consideration in the development of design standards, building codes, and voluntary certifications.

In addition, in October 2019, we recommended that Congress consider establishing a federal organizational arrangement to periodically identify and prioritize climate resilience projects for federal investment. We also identified six key steps the federal government could use to prioritize climate resilience investments and opportunities to increase the climate resilience impacts of federal funding options that Congress could use in designing the arrangement.

In October 2019 we also issued the Disaster Resilience Framework to serve as a guide for analysis of federal action to facilitate and promote resilience to natural disasters. The framework identifies three key principles that can help federal efforts to promote disaster resilience, including building resilience to climate change. First, authoritative and understandable information can help decision makers identify current and future risks and the impact of risk-reduction strategies. Second, integrated analysis and strategic planning can help decision makers take coherent and coordinated resilience actions. Third, financial and nonfinancial incentives can help make long-term, forward-looking risk-reduction investments more viable and attractive among competing priorities.

In conclusion, the effects of climate change have already posed and will continue to pose risks that can create fiscal exposure across the federal government, and this exposure will continue to increase. The federal government does not generally account for such fiscal exposure to programs in the budget process, and it has not undertaken strategic efforts to manage significant climate risks that could reduce the need for far more costly steps in the decades to come. To reduce its fiscal exposure, the federal government needs a cohesive strategic approach with strong leadership and the authority to manage risks across the entire range of related federal activities. The federal government could make further progress toward reducing fiscal exposure by implementing the recommendations we have made.

Chairman Rouda, Ranking Member Comer, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time.

GAO Contact and Staff Acknowledgments

If you or your staff have any questions about this testimony, please contact J. Alfredo Gómez, Director, Natural Resources and Environment, at (202) 512-3841or gomezj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Joseph Dean Thompson (Assistant Director), Micah McMillan (Analyst in Charge), Holly Halifax, Caitlin Jackson, Richard Johnson, Joe Maher, Oliver Richard, and Kiki Theodoropoulos.

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