Weather

Your Climate Disaster Tax Bill Is Growing


Additionally, the ability of state and local governments to absorb disaster costs is limited because they cannot borrow as the federal government can. The only recourse for states overburdened with disaster costs is to turn to the federal government. And the pandemic has underscored the shortcomings in the federal government’s capacity to respond to multiple disasters.

Furthermore, banks are actively offloading risky mortgages onto the government-backed mortgage lenders Fannie Mae and Freddie Mac. As defaults rise with worsening climate, so will the direct liability of the federal government. The Federal Emergency Management Agency’s National Flood Insurance Program is about $20.5 billion in debt — meaning the government has so far chosen to absorb losses while also increasing premiums. As the Federal Reserve Bank of San Francisco put it, because of low “risk awareness and insurance affordability,” many government agencies “have found themselves being expected to act as insurers of first resort.”

A substantial increase in disaster spending could threaten the factor that has pushed the ballooning federal debt in the first place: the U.S. government’s low cost of borrowing. U.S. Treasury notes are considered a safe haven for investors, but there are signs this may be changing. While the credit rating agencies Fitch and S & P maintained their U.S. ratings at the beginning of the coronavirus outbreak, Fitch noted that the short-term risk of downgrades increased in light of the economic shock. At the same time, debt projections continue to increase: The federal deficit, which exceeded $1 trillion in 2019, is expected to reach $4 trillion this year.

To fund climate disaster expenses of the magnitude described above, the federal government would have to significantly escalate its borrowing. Rating agencies are increasingly focused on climate-specific fiscal pressures. As BlackRock stated, Moody’s “warned that climate change would have a growing negative impact on the creditworthiness of U.S. state and local insurers.” A 2018 study by the United Nations Environment Program found that “countries with higher degrees of climate vulnerability face higher sovereign borrowing costs.”

What can the government do to reduce its exposure to climate-related disasters? Cut greenhouse gas emissions and ramp up spending to reduce property exposure to climate-fueled storms and droughts.

We have a choice between a carbon tax and a spiraling climate disaster tax. In a fast-approaching future where higher public spending and escalating debt will require higher levels of taxation, a carbon tax is a prudent choice. It can provide an important source of revenue, encourage industries to decarbonize and lower the danger of further credit rating downgrades — all while decreasing future disaster risk by reducing emissions.

While doing this now will not appreciably affect climate disasters for some time, there is no doubt that ambitious action to reduce emissions worldwide under American leadership can reduce the long-term financial exposure of today’s young Americans. It will leave the country better prepared to pay for other crises that arise — like the one we are currently facing with Covid-19.

Paul Bodnar is a managing director at Rocky Mountain Institute, where Tamara Grbusic is an associate, both focused on global climate finance.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.





READ NEWS SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.