Rising disaster costs leave U.S. confronting fiscal risks of climate change

A second catastrophic hurricane in as many weeks has forced the U.S. government to grapple with a harsh reality: Climate calamities are becoming more frequent, deadly and costly in a country already facing massive fiscal challenges.

The earliest estimates suggest the latest storm, Hurricane Milton, may have unleashed roughly $50 billion in damage across Florida, destroying countless homes, businesses and critical infrastructure that will need to be repaired or replaced, probably with the help of urgently needed federal aid.

But Milton is only the most recent extreme weather event in a nation that experiences on average a billion-dollar climate disaster roughly every three weeks, according to some federal estimates. As these storms, droughts, wildfires and floods strike with greater frequency and intensity, the work to rebuild after them has grown more expensive, too. That has exacerbated the many financial strains on the federal government at a time when the national debt exceeds $35 trillion.

“I think the cost of climate (change) is increasingly a threat to our already very fragile fiscal outlook,” said Mark Zandi, chief economist of Moody’s Analytics. Factoring in the prospect that the government must spend “tens of billions or hundreds of billions more each year to help mitigate the fallout of climate events,” he added, “the outlook looks even darker.”

“It’s one more reason to be nervous about our fiscal future unless we make some changes,” Zandi said.

The nation’s souring fiscal health is the result of many factors, including increased spending, a rapidly aging population and inadequate tax revenue, especially after the tax cuts adopted under Donald Trump’s administration. Generally, budget experts agree that climate change threatens to add to these woes, harming economic output while forcing the government to spend more, and generate less, as it grapples with the consequences of dangerous emissions.

Two years ago, the White House tried to calculate the potential costs: Top budget advisers to President Joe Biden predicted that Washington would face up to $128 billion in new spending every year in the coming decades just in response to certain climate emergencies, including hurricanes, wildfires and floods.

But federal officials acknowledged at the time that their estimates were incomplete: They could not account for all of the ways climate change might deplete federal coffers, depress tax revenue, overwhelm government programs, drain the economy or compromise Americans’ health and well-being, all of which, ultimately, could add to the burden on taxpayers.

“There’s pretty clear evidence that we’re spending more on a range of different types of disasters as a result of climate change,” said Andy Winkler, director of the housing and infrastructure projects at the Bipartisan Policy Center.

The dire warnings contrast starkly with the mood in Congress, where Democrats and Republicans often have warred over who should foot the bill for the costs of extreme weather. In late September, lawmakers departed Washington for the campaign trail, and they have expressed little willingness to return on an emergency basis.

Biden, meanwhile, has not demanded that Congress reconvene after Milton and its immediate predecessor, Helene, which decimated North Carolina. This week, the president urged lawmakers to “move as rapidly as they can” and approve emergency funding.

For the moment, the Federal Emergency Management Agency appears to have the money to respond to back-to-back hurricanes. In recent years, the agency has seen a dramatic increase in demand for help, as climate catastrophes become more common and severe.

Its disaster relief fund, which allows FEMA to finance immediate response and assist local communities with recovery costs, soared to more than $41 billion in fiscal 2023, according to the nonpartisan Congressional Research Service. The last four years marked the four most expensive for the program, which FEMA also tapped over that period to respond to the coronavirus pandemic.

The figure tells an incomplete story, because FEMA is one of more than a dozen federal agencies that aid in a disaster, and it often supplies funds to the hardest-hit communities for many years. W. Craig Fugate, who ran the agency under President Barack Obama from May 2009 to January 2017, said he was still approving aid related to Hurricane Katrina in his final year on the job - 11 years after the deadly storm.

“These disasters have very long tails,” he said, acknowledging that the arrival of longer, more intense hurricane seasons is “adding all of this new work to the pile.”

The increases in FEMA spending align with the grim predictions from other federal agencies and watchdogs, whose warnings are laid bare in years of oft-overlooked reports that hint at the ways in which extreme weather could worsen the federal debt.

Repeatedly, the government’s budget analysts have pointed to the rapid rise in spending by the National Flood Insurance Program, which covers millions of Americans, as wider swaths of the country begin to face new risks from rising waters.

The National Forest Service more recently reported that it spends an average of $2.9 billion on wildfire suppression on covered lands annually, but it projected that the estimate - issued in May - could rise by as much as 84% over the next 25 years without substantial federal intervention.

In a worst-case scenario, federal health-care spending could skyrocket by as much as $22 billion by the end of the century if people become sicker because of extreme temperatures and worsening air quality, one study found, though its authors cautioned that it “may only be a small portion” of the total price tag. Outside analysts at the Rand think tank last year cited past federal findings as they sounded the alarm about Social Security, noting that its finances could sour “if people retire earlier or disability rates increase in response to climate change.”

And the Government Accountability Office, a federal watchdog, has issued multiple reports about a key federal program that insures farmers’ crops against drought and other adverse conditions. Its costs have steadily increased since 2016, topping $17 billion in 2022, the last year studied.

“We know the costs are going to continue to grow in the future as climate change intensifies,” said Anne Schechinger, the Midwest director for the Environmental Working Group, an advocacy nonprofit that has studied the program and recommended changes.

By the organization’s estimate, payments in the federal crop program rose about 500% between 2001 and 2023. Drought in states including Texas and excess moisture from high rainfall in areas like the Midwest have helped drive up the costs to taxpayers, often resulting in repeat insurance payments to areas that are regularly exposed to extreme weather, according to EWG.

The widening fiscal risks have troubled some fiscal hawks in Washington, who have called on federal lawmakers to offset any new climate expenses - including some emergency disaster spending - with other budget cuts or new savings.

“We should at this point be paying for the costs of these emergencies,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. The group advocates for deficit reduction, and MacGuineas said the government ought to find new revenue or spending cuts to ensure future aid packages do not add to the debt.

At times, Republicans in Congress have halted some of these measures in an attempt to ensure they do not add to the deficit, though some have reversed course when their communities have been in harm’s way. Surveying the extensive damage this week in North Carolina, House Speaker Mike Johnson (R-La.) did not explicitly address the looming fight: He assured locals that FEMA has enough money, but promised Congress would convene soon and, if necessary, approve “the appropriate amount.”

Democrats, meanwhile, broadly have supported massive new federal investments to slow climate change or blunt the expensive consequences of a gradually warming planet.

“We’re in a moment where the realization is coming to ordinary Americans that climate change is not just about polar bears or green jobs, but that it could have really dangerous damaging economic consequences in their lives right now,” said Sen. Sheldon Whitehouse (D-R.I.), chairman of the Senate Budget Committee.

Soon after taking office, Biden and his allies worked with Republicans to adopt a bipartisan, $1.2 trillion package that would harden the nation’s infrastructure, before Democrats secured new climate-focused grants and tax credits one year later in the Inflation Reduction Act on a party-line vote over staunch GOP objections.

The law aims to boost clean energy including electric cars and unwind tax benefits for oil and gas producers, part of Biden’s effort to try to reduce emissions to half of their 2005 levels by 2030.

“We have to recognize when we’re trying to improve the fiscal path of the country, that’s a multiyear effort, and in that multiyear effort, that front-loaded investment can actually pay off in a meaningful way,” said Ali Zaidi, the president’s top climate adviser.

The rising risks also prompted the White House to calculate the fiscal effects of climate change in the annual budgets it submits to Congress. The inaugural document, issued in 2022, projected that some climate scenarios could hammer U.S. output and raise the country’s expenses - leading U.S. debt to reach 124% of its gross domestic product over the next 25 years, along with higher spending on Social Security and Medicare as the population ages.

Each subsequent fiscal year, the White House has continued raising alarms about the fiscal consequences of climate change, predicting it could raise costs for the military, create new demands on anti-poverty programs and threaten its ability to service federally backed mortgages if homes are damaged or destroyed due to extreme weather.

“The effects of human-caused climate change are already far-reaching and worsening across the United States,” the administration added in its latest budget issued in March. “As broad economic damages from climate change grow, so does the impact of the climate crisis on the Federal Budget.”