Responding to the Financial Impacts of Climate Change

By Laura H. Gillam, Associate Director for Climate, Energy, Environment, and Science, Office of Management and Budget & Wesley E. Yin, Chief Economist, Office of Management and Budget

Every Earth Day, Americans come together to celebrate our world and renew our commitment to be good stewards of our planet. What was true 54 years ago when Americans first celebrated Earth Day is true today: a healthier planet with cleaner air and cleaner water is good for our health, our communities, and our economy.

Nowhere is the link between our environment and our economy more apparent than in our fight against the climate crisis. As communities across the country face more frequent and more extreme weather-related events fueled by climate change, such as increased flooding, hurricanes, heat, droughts, and wildfires, they are also grappling with both the human toll and the economic fallout of these disasters. As the climate crisis worsens, so do the fiscal risks. The Fifth National Climate Assessment (NCA5) found that 40 years ago, the United States experienced, on average, a billion-dollar disaster every four months, adjusting to 2022 dollars. Today, the Nation experiences on average a billion-dollar disaster every three weeks, with 28 billion-dollar disasters occurring in 2023 alone, causing a total of $92.9 billion in damages.

Since Day One, President Biden has taken bold action to tackle the climate crisis and better protect our economy from climate risks – delivering on the most ambitious climate, conservation, and environmental justice agenda and securing the largest investment in climate action by any country in history. This agenda also includes a vision for a climate resilient Nation outlined in the National Climate Resilience Framework and prioritizes climate investments in disadvantaged and low-income communities through the Justice40 Initiative. To further protect our economy from the rising costs of the climate crisis, President Biden, through the Executive Order on Climate-Related Financial Risk, directed the Office of Management and Budget (OMB) to identify climate fiscal risks and provide fiscally responsible solutions in the President’s Budget that reduce the government’s long-term climate fiscal risks and enhance resilience. 

The President’s Budget for Fiscal Year 2025 meets the President’s commitment to reduce our Nation’s climate fiscal risks by:

• Prioritizing Investments that Reduce the Public Risks of the Climate Crisis. The Budget proposes to invest more than $23 billion across the federal government in climate adaptation and resilience alone – this is in addition to the Budget’s proposed investments in climate mitigation and the billions already provided by the Bipartisan Infrastructure Law and Inflation Reduction Act. Some examples of the Budget’s investments that reduce the public’s risk to the climate crisis include:
  • An investment of $4 billion in base funding for wildland fire and hazardous fuels management programs at the USDA Forest Service and Department of the Interior (DOI), which includes expanded workforce capacity and support for our wildland firefighters with permanent, comprehensive pay reform, enhanced health services, and improvements in government housing; and
  • Support for community-scale climate resilience and hazard mitigation through investments such as $1 billion in the Federal Emergency Management Agency’s Building Resilient Infrastructure and Communities grant program, $65 million for the U.S. Bureau of Reclamation WaterSMART program to build long-term resilience to drought, and $105 million at the Department of Energy to help low-income and disadvantaged communities with extreme heat challenges.

• Providing Analysis of Climate Financial Risks for Federal Services and Programs. Agencies across the government are taking action to better understand the climate vulnerabilities of their programs, missions, and facilities. This includes developing Climate Adaptation Plans that identify and address climate risks to agency operations, facilities, and workforce. Some agencies are already estimating the extraordinary increases in program costs by mid- and late-century due to climate impacts increasing Americans’ need for federal support during disaster response and recovery. OMB’s analysis of climate-related financial risk provides updated information on agency risk management actions and assessments, for select disaster relief and wildfire management programs, such as:
  • The U.S. Department of Agriculture’s (USDA) Livestock Forage Disaster Program, which helps ranchers during periods of prolonged and intense drought, estimates annual expenses may increase up to $800 million per year (in 2022 dollars) more than current expenditures by the end of the century due to the effects of climate change.
  • USDA and DOI wildland fire suppression spending on federal lands is expected to increase by $1.3 billion per year by mid-century and more than $2.5 billion per year by late-century in response to the dramatic increase in wildfires due to climate change.
• Prioritizing Public Access to Climate Risk Information and Climate Services. Federal climate service and technical assistance programs are essential for communities, States, and Tribes as they make their own decisions on how to help their constituents manage climate risks. The Budget continues to invest in these services, provided by programs such as USDA’s Climate Hubs and the U.S. Geological Survey’s National and Regional Climate Adaptation Science Centers, and highlights actions the federal government is taking to make climate risk information and services more accessible. For example, the NCA5 Interactive Atlas and Climate Mapping for Resilience and Adaptation portal provide authoritative and easy-to-access information to better understand future climate impacts.

• Building Out Macroeconomic Models to Assess Climate Risks. Many of the climate impacts facing federal programs also pose risks to the broader economy. The macroeconomic implications of climate change will also affect federal spending and revenues, particularly over the longer term. Consequently, OMB included alternate climate scenarios into the Budget’s Long-Term Budget Outlook. Each of these alternate scenarios examines a different pathway for global greenhouse gas emissions and average temperature. Drawing from a compilation of recently published, peer-reviewed studies (CEA and OMB, 2023), OMB projected the GDP losses associated with rising temperatures, and how those projected GDP losses in turn imply higher ratios of federal debt to GDP. A further analysis (CEA and OMB, 2024) presents a step-by-step methodology for quantifying physical risks of climate change and the transition risks and opportunities associated with the clean energy transition for macroeconomic forecasts. This reflects how reducing greenhouse gas emissions will make the U.S. economy stronger and more resilient, and help to contain the federal government’s costs over the longer term.

As President Biden has stated, “[t]hroughout our history, we’re the only nation in the world that has come out of every crisis we’ve entered stronger than we went into it. We’re doing it again here on the climate crisis.” President Biden’s Budget not only builds on the historic investments made in the Inflation Reduction Act and Bipartisan Infrastructure Law to support a more resilient and cleaner economy, it also takes consequential steps to reduce climate risks and to protect public health and communities across our Nation now and in the future.