Budgetary Effects of Climate Change and of Potential Legislative Responses to It
CBO outlines the main channels by which climate change and policies intended to mitigate or adapt to it affect the federal budget. Climate change increases budget deficits; investments in mitigation or adaptation could reduce those costs.
In this report, the Congressional Budget Office outlines the primary channels by which climate change and policies intended to mitigate or adapt to it affect the federal budget.
Climate change increases federal budget deficits, on net, by reducing revenues and increasing mandatory spending, both through its broad effects on the economy—which are negative, on average—and its specific effects on particular programs. Climate change may also increase the amount of discretionary funding provided by the Congress for certain activities and programs.
Investment by the government or others in various types of mitigation or adaptation efforts could reduce the costs of climate change. The benefits of successful investments would generally accrue gradually over many years and might be only partially reflected in future savings to the federal budget. The extent of future budgetary savings might sometimes be a small proportion of the up-front costs. Currently, CBO has no basis for estimating future savings, because many of the linkages between climate change and the federal budget require further assessment.
For some sufficiently large and effective efforts, increases in total output of the economy would be the main channel by which future budgetary savings would occur. Those savings might be less important than other benefits.
A key challenge in estimating future budgetary savings from investments in mitigation or adaptation is that currently available information is insufficient for estimating the long-lasting and diffuse effects of such investments. CBO continues to consult with various experts and to seek new data and scientific research on climate change.