On Wednesday, February 15, the Senate Committee on the Budget held its first hearing of the 118^th Congress: “Climate-Related Economic Risks and Their Costs to the Federal Budget and the Global Economy.” Hearing witnesses were Dr. Mark Carney, Former Governor of the Banks of England and Canada; Dr. Robert Litterman, Founding Partner of Kepos Capital and Chair of the U.S. Commodity Futures Trading Commission (CFTC) Climate-Related Market Risk Subcommittee; and Dr. Douglas Holtz-Eakin, President of the American Action Forum and former Director of the Congressional Budget Office.

The hearing, the first in a series according to Chairman Whitehouse (D-RI), concentrated on the “looming costs and economic risks of climate upheaval.” Chairman Whitehouse compared the current and future budgetary impacts of climate change to other “exogenous shocks to the economy,” like the 2008 financial crisis or the recent COVID-19 pandemic and associated economic downturn. Chairman Whitehouse said climate change poses a serious budgetary threat, echoing recent Government Accountability Office (GAO) reports and other independent government analyses. Dr. Mark Carney agreed that climate change poses economic risks, saying that “the orders of magnitude are potentially similar” if we delay investments to address and adapt to climate change.

The hearing covered many areas of the economy that will be impacted by the effects of climate change, such as increasingly destructive natural disasters and rising sea levels. The number and cost of climate-driven extreme weather events in the U.S. is rising. As Dr. Mark Carney stated in his oral testimony, the number of billion-dollar disasters in the U.S. has risen sixfold from the first half of the 1980s to an average of 18 per year in 2022. The annual inflation adjusted costs of these disasters has also risen seven times, from $18 billion per year in the first half of the 1980s to $120 billion per year in the past 5 years. These natural disasters pose risks to our infrastructure and agriculture, among other areas of our economy.

Infrastructure

Much of our nation’s infrastructure is ill-equipped for climate-driven extreme weather events. As Dr. Litterman explained:

“We build infrastructure to withstand events that happen on a regular basis… But when 100-year event occurs the magnitude is so large that we’re not prepared, and it typically leads to complete destruction of property. The problem is that while such a term continues to describe the magnitude of extreme weather events, their frequency of occurrence today tends to be much higher.”

Natural disasters are not going away – in fact, they are increasing, both in frequency and intensity. But too often, federal disaster-relief programs are simply reactive, instead of proactive to promote resilience to future challenges. As Sen. Kaine (D-VA) said, Congress is always willing to spend money in response to an emergency, but “what has been harder to do is find smart resilience funding or even more importantly, smart prevention funding.” Pre-disaster mitigation can save taxpayers money: every dollar spent on mitigation can save six dollars or more in post-disaster response – savings lives and helping build more resilient communities.

Agriculture

Natural disasters, and other effects of climate change, also have a negative effect on agriculture. In their oral testimonies, Dr. Carney and Dr. Litterman highlighted the impact of climate change on the U.S. agricultural economy. Dr. Carney described how extreme weather is already “reducing incomes for farmers and raising food costs for families.” And these trends are expected to continue. Dr. Litterman, citing a study published under his leadership at the Commodity Futures Trading Commission (CFTC), said that “climate change is likely to significantly reduce crop yields, decrease labor productivity, degrade soil and water quality, increase the range and virulence of pests and disrupt supply chains.” These changes cost consumers and taxpayers more through higher food prices and increased spending on federal subsidies.

Numerous federal programs exist to assist agriculture in times of need, including crop insurance, shallow loss programs, and disaster aid. This suite of subsidies provides economic protection from both catastrophic crop losses as well as less severe dips in anticipated yields, prices, or incomes. Since 2014, agriculture programs covering disaster losses and other commodity subsidies have cost taxpayers an average of $12.5 billion annually. New Congressional Budget Office (CBO) projections released on February 15 state that the federal crop insurance program alone is expected to cost taxpayers a record $15.5 billion in FY23, partially due to recent droughts, hurricanes, and other disasters.

And while taxpayers are already paying these climate-related costs, there is also opportunity for agriculture policy reform that can mitigate the effects of climate change. As Dr. Litterman emphasized, there is “a tremendous opportunity in farming, in ranching and in timber lands to address this problem.” Sen. Marshall (R-KA) also raised the role of agricultural conservation stewardship practices, like no-till and wetlands conservation, in decreasing America’s carbon footprint from agriculture. Investments in conservation and other policy reforms have the opportunity to incentivize economic and climate resilience, lessening federal spending and mitigating the costs of climate change.

Cumulative Costs of Climate Change

The costs of climate change are real and growing. As Sen. Van Hollen (D-MD) said, “at the end of the day, we’re going to pick up the tab…. we’re going to pay one way or another if we don’t figure out how to address this.” And these costs are only adding up; according to Dr. Holtz-Eakin, the combined influence of climate change – including the destruction of infrastructure and reduced productivity of agricultural lands – will “cumulatively reduce inflows to the federal budget.”

One way to address the drivers of climate change and raise revenue is by putting a price on carbon. Senators Romney (R-UT) and Van Hollen (D-MD), as well as all three witnesses, expressed support for putting a price on carbon. Taxpayers for Common Sense has supported putting a price on carbon since our founding in 1995. A price on carbon would ensure that market prices reflect the actual costs associated with goods and services, including the future costs and long-term liabilities of climate change driven by carbon emissions. As Dr. Litterman advocated, a “polluters pay” model is a great way to raise revenues and reduce the deficit – a concern expressed by many committee members.

Deficits and Debt

Some committee members took the hearing as an opportunity to address other budgetary issues they hope the committee will address this session, including a growing concern over the national fiscal outlook. According to Ranking Member Sen. Grassley (R-IA), public debt is predicted to reach 110% of our economy in 2032, and annual interest on the debt will cost more than $1 trillion within 10 years. (CBO’s updated report revised public debt up to 114.8 percent of GDP in 2032 and that annual interest exceeds $1 trillion starting in 2029). Sen. Lee (R-UT) described the state of the federal budget as in “profound disrepair, perhaps more so than at any other time in our nation’s history.”

We have long advocated that tough decisions are needed to improve the US budget outlook. While trillion-dollar annual budget deficits appear to be here to stay, that doesn’t mean they should be normalized; deficits and debt matter. Our current costs related to servicing U.S. debt, which are only expected to grow, crowd out other critical investments. As Dr. Holtz-Eakin said in his opening statement, “not only would getting the budget on a sustainable trajectory, improve the economic outlook, it would free up the budget resources to investment, especially investments in the climate mitigation and adaptation that are so important to this Committee.” Policymakers need to make difficult short-term decisions – like annual appropriations spending – and long-term decisions – like Social Security and Medicare – to get our fiscal house in order.

Return to Regular Order

For some committee members, an important step in creating a responsible federal budget is to return to normal order in the congressional appropriations process. Sen. Grassley said this in his opening statement: “One area of agreement must be that our budget and appropriation process is broken. This sentiment isn’t new at all, nor is it particularly partisan.”

Traditionally, the budget process for the coming fiscal year begins on or before the first Monday in February when the President submits a detailed budget request to Congress. Congress then passes a budget resolution, an internal governing document for Congress that divides funding between non-discretionary and discretionary spending, before getting to work on drafting and passing 12 appropriations bills. However, this regular order has become more and more irregular. The last time all spending bills were completed on time was 1997, and the last time they were done on time and passed individually was 1994.

Sen. Grassley and other committee members pointed out that fiscal year 2023 appropriations did not follow regular order and were no different: the President didn’t submit the budget request on time, Congress didn’t adopt a budget resolution, the Senate Appropriations Committee didn’t mark up appropriation bills, and none of the appropriation bills were debated on the Senate floor. Sen. Grassley put it simply: “Things need to change.” Sen. Braun (R-IN) similarly called for no more appropriating “behind closed doors” or holding votes without providing adequate time to read the proposed legislation.

TCS has long advocated that regular budget order leads to better outcomes. Ensuring that members have the opportunity to actively engage, debate, and compromise on legislation not only creates a better final product, but it also provides greater opportunity for transparency and accountability.