March 1, 2023

Time to Wake Up 287: Climate in the Budget Committee

Mr. President, here I am again with my trusty, battered chart by my side, this time here to talk about the looming costs and economic risks of climate upheaval.

Almost exactly 5 years ago, I sent around a binder about this thick to all of my Senate colleagues in which I compiled some of the most compelling warnings about the looming climate economic crisis. I have just recently updated it and shared it with all of the Budget Committee members. It is now more like this thick, as the warnings just keep piling up.

These warnings come from central bankers, economists, asset managers, insurance companies, investment banks, credit rating agencies, and leading management consultants—folks with a lot of credibility when it comes to economics, finance, corporate risk, and their effects on government spending and revenues—folks who often have a fiduciary obligation to get this right.

The Budget Committee has started to dig into these warnings. We have just held the first two of a series of hearings on climate impacts to our Federal budget. Our second hearing, held earlier today, explored warnings of crashes in coastal property values amid rising seas and more powerful storms.

One of our witnesses was Kate Michaud, the town manager of Warren, RI. Warren is the smallest town in the smallest county of our smallest State. There, like in many small coastal towns all around the country, in Georgia and elsewhere, the problems are real and they are immediate. She testified that some homes in Warren have seen their value drop by one-third because of flood risk. And sea level rise is projected to permanently flood some coastal portions of Warren over the next decade. This is mapping that is done by the State of Rhode Island that shows the projected flooding zone of Warren, and all of these are existing buildings and homes that will be inundated.

Warren is not alone. Zillow’s real estate database has identified over 4,800 homes in Rhode Island that would be under water with a projected 6 feet of sea level rise, which is projected for Rhode Island. That is nearly $3 billion in home values.

And Rhode Island is not alone. The United States has nearly 13,000 miles of coastline. Forty percent of our population lives along the coast. More than a trillion dollars’ worth of residential and commercial real estate is coastal. And for most American households, their greatest wealth is their home.

First Street Foundation, whose CEO testified at this morning’s hearing, examines flood risk. It is what they do. Their examination shows significantly increasing risks to residential properties over the next 30 years. And Rhode Island does its own flood projections, and they show similar risks. Just 2 weeks ago, a study found real estate exposed to flood risks was overvalued—i.e., the flood risk had not yet been taken into account—by up to a staggering $237 billion, with the worst property overvaluations along coasts; and, of course, Florida, with all of its coasts, is the prime liability.

The study warns that, as a result, coastal real estate values may plummet and that can cascade into systemic risks for the mortgage market. Freddie Mac, the mortgage giant, has made very similar warnings about coastal property values. Their former chief economist, who also testified at this morning’s hearing, has said: “The economic losses and social disruption . . . are likely to be greater in total than those experienced in the housing crisis and Great Recession.”

Anybody who was here through that 2008 housing crisis and the recession that followed knows how sobering that warning is, and it comes from that collapse in coastal property values triggered by difficulty in getting mortgage and insurance, with its 30-year lead time, collapsing values and then cascading out into the rest of the economy.

Sea levels are rising, and the rate is accelerating. That is a scientific fact. As homes and businesses in coastal communities face more frequent sunny-day flooding and wetter and more violent ocean storms, more homes will be under water, both literally and figuratively. Insurance will become more expensive and harder to find. Mortgages depend on insurance. So lending will suffer. Coastal communities will become harder places to live and work, and real estate values and local tax bases will decline.

Moody’s is already looking at local municipal bonds in this light. In emergencies, coastal communities will turn to the Federal Government for financial assistance. Federal flood insurance costs will rise. For home mortgages, banks and insurance companies will look ahead 30 years. So, long before the ocean laps at physical doorsteps, those markets will be hit, and the effect in real estate markets across the country will bring harsh consequences for families and their financial stability.

I used the term ‘‘systemic risk’’ earlier. Systemic risk is a bland term used by economists. What it refers to is anything but bland. It refers to the massively destabilizing events that can cascade out and trigger general economic recession. Think of the mortgage crisis in 2008. Twenty percent of household wealth was wiped out in 2 years. Unemployment soared, and government revenues were reduced for a decade.

There is broad concern here about deficits. Well, deficits tripled as a result of that 2008 shock. According to CBO, revenues fell by $4.4 trillion, and projected spending rose by $800 billion to fund the recovery, for a net debt increase total of over $5 trillion from that event. Well, we should see the writing on the wall when it comes to climate risks.

At our first hearing, Dr. Mark Carney, who has been Governor—their phrase for CEO—of the Bank of England and of the Bank of Canada, gave us the scale of the risk. He testified that ‘‘over the balance of this century, climate change could reduce the level of global GDP per capita by 10 to 20 percent without efforts to limit warming.’’ That would be ‘‘the equivalent of a decade of no economic growth.’’

Bob Litterman, an economist who spent more than two decades managing risk for Goldman Sachs as its chief risk officer, now chair of the Climate-Related Market Risk Subcommittee at the U.S. Commodity Futures Trading Commission, testified: “We are on track for somewhere between 2.2 and 3.4 degrees of warming by 2100, which would result in GDP losses of somewhere between 2.6 and 4 percent.” That’s more than our recent annual growth rate, implying the possibility of long-term negative growth as climate change worsens.

This is not a future problem. Some of these warned-of risks are already upon us.

Already, climate-related natural disasters increase Federal spending on disaster assistance, flood insurance, crop insurance, and other programs.

Already, extreme heat and drought force western farmers to leave land unplanted and reduce livestock herds. Droughts around the world already hit cotton production, raising costs on production like medical gauze and cloth diapers. Insurance prices are already through the roof—in Florida and Louisiana, hammered by increasingly violent hurricanes, and out West, under siege from more intense and frequent wildfires.

This will certainly get worse—much worse, particularly if warming exceeds 1.5 degrees Celsius. We are on a bad trajectory.

Think of coastal cities flooded with water and Southwest cities that can’t get water. Think of a Salt Lake that is virtually gone and blowing dust over Salt Lake City.

Deloitte—the management consulting firm—predicts that the differential between being responsible and reckless about climate could sum to more than $220 trillion globally between now and 2070. We use big numbers around here a lot. A $220-trillion swing in the global economy is massive. And Deloitte is not exactly a green outfit.

There is some good news here. By acting now, we can minimize the damage and costs to households, businesses, and our economy—and there are huge economic opportunities from investing in climate action.

The Inflation Reduction Act invested $370 billion to create good-paying jobs and new economic opportunities. It will lower energy costs for families and small businesses and accelerate the transition to clean energy.

Looking ahead, a well-designed carbon border adjustment—an idea which has bipartisan support—would significantly curb greenhouse gas emissions in the United States and overseas and boost American heavy industry against our Chinese competitors and reshore American manufacturing jobs lost in past decades.

Let me close on tipping points. Tipping points are thresholds that change the trajectory of harm, potentially dramatically. One example is the tipping point where warming will cause the Greenland ice sheet to collapse and melt. We don’t know exactly where that threshold lies. That is one of the dangers of our climate experiment. But science suggests it is between 1.5 and 2 degrees Celsius of warming.

Well, folks, we have already warmed 1.1 degrees. So the distance to 1.5 or 2 degrees is pretty short. If we lose the Greenland ice sheet, it is 22 feet of sea level rise.

So we would do well to avoid these tipping points, to avoid the systemic economic risks, to behave prudently and responsibly, and to take advantage of a stronger and more stable clean energy economy that beckons.

It is long past time to wake up. I yield the floor