Putting a Number on the Federal Expenditures Driven by Climate Change

Climate change will continue to exact a greater financial toll across the nation. According to new analysis released today by the Office of Management and Budget, by the end of the century climate change could lead to an annual federal revenue loss of 7.1 percent, which in today’s dollars would equal $2 trillion per year.   

Furthermore, the analysis found that the federal government could spend between an additional $25 billion to $128 billion annually on just six types of federal expenditures: coastal disaster relief, flood insurance, crop insurance, healthcare insurance, wildland fire suppression, and flooding at federal facilities. 

Calling the fiscal risk of climate change “immense,” the analysis found:

• Federal expenditures on crop insurance premium subsidies are projected to increase 3.5 to 22 percent each year due to climate change-induced crop losses by the late-century, the equivalent of between $330 million and $2.1 billion annually.
• Increased hurricane frequency could drive up spending on coastal disaster response between $22 billion and $94 billion annually by the end of the century.
• More than 12,195 individual federal buildings and structures could be inundated under 10 feet of sea level rise, with total combined replacement cost of over $43.7 billion.
• Rising wildland fire activity could increase federal wildland fire suppression expenditures by between $1.55 billion and $9.60 billion annually, the equivalent of an increase between 78 percent and 480 percent, by the end of the century.

“Climate change threatens communities and sectors across the country, including through floods, drought, extreme heat, wildfires, and hurricanes that affect the U.S. economy and the lives of everyday Americans. Estimated damages from a subset of these events have grown to about $120 billion a year over the past five years,” Candace Vahlsing, OMB’s associate director for climate, energy, environment, and science wrote in a blog post with OMB Chief Economist Danny Yagan.

This is the first time OMB is formally accounting for climate change risks in the federal budget. OMB published two new assessments, Federal Budget Exposure to Climate Risks and a new section in the Long-Term Budget Outlook focused on climate change. The first of these chapters is supported by an OMB white paper.