On October 23, 2017, the Government Accountability Office (GAO), the auditing agency of the US Congress, released a report on climate change titled, “Information on Potential Economic Effects Could Help Guide Federal Efforts to Reduce Fiscal Exposure” (the Report). GAO prepared the report at the request of the US Senate’s Committee on Energy and Natural Resources to review potential economic effects of climate change and risks to the federal government. The Report represents the latest installment of GAO’s attempt to monetize and frame climate change’s risk to the federal government, following the GAO’s inclusion of “Limiting the Federal Government’s Fiscal Exposure by Better Managing Climate Change Risks” on its “High-Risk List” in 2013 and its 2015 “High-Risk Update” on climate change adaptation.
The report finds that climate change could result in significant impacts to the US economy that may be unevenly distributed across US sectors and regions, and recommends that the Executive Office of the President work with appropriate federal entities to identify significant climate risks and develop appropriate responses. The report highlights that the federal government has already incurred direct costs of more than US$350 billion dollars due to extreme weather and fire events over the past decade.
In preparing the Report, GAO reviewed two national-scale studies and 28 other available studies and interviewed 26 experts and knowledgeable stakeholders, and compared government-wide efforts to manage climate risks with leading practices for risk management. This performance audit was conducted from December 2015 to September 2017. The Report notes the inherent uncertainties of climate modeling and the difficulty of forecasting climate change’s effects due to the confluence of two erratic factors – weather and economics. It is somewhat surprising that GAO, in 2017, could not find more than two reliable and comprehensive national studies on climate change, given its primacy in national and world politics in the last decade or longer.
The Report concludes that economic impacts associated with climate change could be significant and could increase over time as the end of the century approaches. The Report cites a study finding that the estimated net economic costs increase over time and that the likely combined direct economic effects of climate change on six sectors analyzed (health, labor, coastal communities, energy, agriculture, and crime) could reach between 0.7 and 2.4 percent of the US gross domestic product per year by the end of the century. For example, the Report adds, estimated costs for coastal property losses from sea level rise and increases in frequency and intensity of storms would result in US$4-6 billion per year in the near term to as great as US$51-74 billion per year by end of the century. The Report also cites another study finding similar potential economic impacts across its broad spectrum of sectors analyzed, including health, infrastructure, electricity, water resources, agriculture, and forestry.
Uneven Impacts Across Sectors
The Report, relying on the same two studies, states that potential economic effects of climate change will be likely be unevenly distributed across sectors. The human health, labor, coastal infrastructure, and energy sectors would likely be more heavily impacted than others such as agriculture and crime. For example, the Report suggests that infrastructure in coastal areas faces higher financial risks than other sectors or geographic regions.
The disparity is attributable to a combination of factors, chief of which include: (i) an increase in premature mortality from higher temperatures; (ii) reduced number of hours worked because of high temperatures; (iii) infrastructure damage from increased flooding and storm surge; and (iv) increased energy demand. The CCIRA study similarly suggested that emissions reductions would generally generate larger effects on sectors related to human health, water resources, and electric power, with driving factors including: (i) lost labor hours and premature mortality from poor air quality and extreme health in the health sector; (ii) costs to water users when sufficient water is not available; (iii) and costs to expand power system capacity in the energy sector.
The Report notes that each sector’s ability to adapt to its climate change risk will produce uneven impacts on sectors. For example, “protective adaptation measures – such as beach nourishment, property elevation, shoreline armoring, and property abandonment – can reduce projected coastal property damage.”
Uneven Regional Impacts
The Report, suggests that potential economic effects of climate change will be likely be unevenly distributed across regions as well. To illustrate, ACP reported that individual states could experience uneven impacts. By the end of the century, Vermont could possibly see a 0.8 to 4.5 percent annual benefit to economic output compared to Florida’s 10.1 to 24% net annual economic costs.
The Report also identifies anticipated types of climate impacts specific to different regions of the US, ranging from increases in coastal infrastructure damage and heat-related mortality in the Southeast, to a decreased agricultural yield and decreased cold-related mortality in the Midwest. A key study cited by the report notes that the Southeast, Midwest, and Great Plains regions will likely experience the greatest economic impacts in coming years.
The Report finds that collecting and identifying information on potential economic impacts of climate change is the first step toward effective climate risk management at the federal level. The Report points out the absence of any government-wide strategic planning efforts to help set clear priorities for managing significant climate risks before they become federal fiscal exposures, suggesting that, “climate change risk management efforts need to be focused where immediate attention is needed and that, by prioritizing federal climate risk management activities well, the federal government can help to minimize negative impacts and maximize opportunities associated with climate change.” The Report calls for more comprehensive information on economic effects to better understand potential costs of climate change to society to better inform decision maker’s cost-benefit analysis of different adaptation options. GAO recommended that the appropriate entities within the Executive Office of the President, including the Council on Environmental Quality, Office of Management and Budget, and Office of Science and Technology, use the information presented in the Report to help identify significant risks and craft appropriate responses to climate change on the federal level.