It’s no secret that the Earth is heating up, and if permanent, it has serious consequences. As global temperatures rise, the costs of adapting to climate change will also increase. The last couple of years have seen some of the most devastating impacts of climate change, with many countries suffering from severe wildfires, storms, floods, and droughts. It’s clear that climate change is one of the biggest threats to humanity today, both in the U.S. and around the world. It affects our health, our lives, and our economic and financial stability.
But climate change must also be seen as massive opportunity for economic growth as government and private sector spending is rising at unprecedented levels to combat it. At BPI, we believe strongly in following money flows to see future opportunities. This is one of the largest new flows we have seen in decades.
The impacts of climate change are already destructive and will continue to increase if we do not act now. Figure 1 below illustrates some of the major social and economic effects of climate change. As explained by Iberdrola, the global renewable energy leader, “Heatwaves make us less able to work and reduce productivity. Hurricanes, cyclones, and typhoons devastate millions of people, leaving them in absolute poverty after ruthlessly sweeping away their communities. Droughts shrink harvests, further complicating the arduous task of feeding the world population.” According to the World Bank, if we don’t act immediately, climate change could push as much as an additional 100 million people into poverty by 2030. Moreover, it is estimated that the impacts of climate change will cut down economic output by 11-14% by 2050.
Figure 1 – The Economic and Social Impacts of Climate Change
Reducing emissions is critical to mitigating the impact of climate change, but it’s not the only solution. We must also prioritize and invest in adaptation measures that help us better prepare for and respond to the impacts of climate change that are already happening and will continue to occur. This includes developing strategies to protect against natural disasters, building infrastructure that is more resilient to extreme weather events, and supporting communities and industries that are particularly vulnerable to the effects of climate change. This is important for both the world and inside the United States.
The U.S. has seen its share of climate disasters. In a previous article, we have covered how climate change is contributing to the global food crisis, including the U.S. megadrought. We’ve also discussed how the Inflation Reduction Act is enabling the country to mitigate its contribution to global emissions. In this article, we will focus on what the U.S. is doing to adapt and build resilience to the impacts of climate change at the legal, federal, and state levels.
Types of Climate Risks and How the U.S. is Affected
The direct impacts of climate change and the economic adjustments required to mitigate emissions present risks to the U.S. economy. Climate change risks can be divided into two broad categories: physical and transition risks.
Physical risks are the direct and indirect costs or losses resulting from the impacts of climate change. There are three types of physical risks, and they are direct acute risks, chronic risks, and indirect risks.
- Acute Physical Risks. These result from the rising severity and frequency of extreme climate-related weather events, such as wildfires, heatwaves, floods, and storms. Climate-related global economic losses increased sevenfold between the 1970s and the 2010s, rising from only $49 million, on average, to $383 million per day. It is estimated that the 10 biggest climate disasters alone have cost the world $170 billion in 2021, and that by 2050, floods and droughts could result in a global economic cost of $5.6 trillion.
- Chronic Physical Risks. These result from the long-term gradual changes in climate, such as sea-level rise, changes in precipitation, droughts, ocean acidification, severe weather variability, and rising average temperatures. Such long-term effects increasingly impact, among others, health, labor productivity, and crop yields.
- Indirect Physical Risks. These result from the loss of natural capital and ecosystem services, such as soil degradation, water scarcity, desertification, and degradation of marine ecologies.
In the U.S., a total of 338 severe weather- and climate-related disasters, which resulted in costs and damages of $1 billion or more (adjusted for 2022 Consumer Price Index), occurred between 1980 and October 2022. Those climate events resulted in a total cost of $2.3 trillion for the U.S. economy. Figure 2 shows the evolution of the frequency of climate disasters that reached or exceeded $1 billion in losses between 1980 and 2021. In the United States alone, the number of climate-related events has soared, with an average of 22 events per year in 2020 and 20 events in 2021. This represents a sevenfold increase from the 1980s, when there was an average of just 3 disasters per year. These events can have devastating consequences for businesses, and it is crucial that companies take steps to mitigate the risks posed by climate change and adapt to a changing environment.
Figure 2 – Frequency of $1 Billion Climate Events in the U.S., 1980-2021
The total annual cost of such climate-related events, as shown in Figure 3, also increased eightfold from an average of $20 billion in the 1980s to more than $150 billion in 2021. The last five years of 2017-2021 alone accounted for $788.4 billion, just over a third of the total cost of climate disasters since 1980.
Figure 3 – Financial Cost of $1 Billion Climate Events in the U.S., 1980-2021, $billion
As of October 11, the first 9 months of 2022 sustained 15 severe weather and climate disasters with a cost of at least $1 billion. As illustrated in Figure 4 below, the impacts of climate change were felt across the U.S., and included ten severe storm events (e.g., tornado outbreaks, hailstorms, and a derecho), two tropical cyclones (Ian and Fiona), the Western wildfires, the Kentucky/Missouri flooding, and the Western/Southern Plains drought/heatwave.
It is estimated that climate-related events, such as droughts, floods, wildfires, and storms could impose a cost of $2 trillion a year on the U.S. federal budget by 2030. This value is equivalent to a 7.1% loss in annual revenue. These events had far-reaching consequences for businesses and communities, highlighting the need for proactive measures to address the risks posed by climate change.
The second category of climate risks are transition risks. They are those risks resulting from the policy action implemented to transition the economy from fossil fuels toward net-zero. For example, the U.S. is committed to reducing its greenhouse gas (GHG) emissions by 50-52% by 2030, compared to 2005 levels, and reaching net-zero emissions by 2050. Reaching such targets requires massive economic adjustments and structural changes across multiple sectors, including energy, transport, industry, and agriculture.
The implementation of policies aimed at mitigating climate change often carries significant upfront costs, making them a controversial and politically challenging issue. Some may argue that it is unnecessary to incur these costs, as climate change may resolve itself over time. However, the majority of policy makers around the world, including in the United States, have recognized the scientific evidence supporting the existence and potential consequences of climate change, and are committed to taking action to address it. Policies taken to incentivize the transition can include several measures, such as carbon taxation or pricing, mandatory disclosures, and emission regulation, which will probably affect the government, businesses, households, and communities. Businesses, for instance, will need to adopt new business models and restructure their production methods from carbon-intensive to low-carbon or carbon-free alternatives. Without careful planning and sufficient support, businesses could incur huge costs and get stuck with immense stranded assets. Moreover, during such transition, many could lose their jobs, necessitating government support to communities that largely depend on carbon-intensive industries for work.
According to a recent analysis by McKinsey & Co., the global value of capital spending on physical assets required for the energy and land-use systems transition, which is responsible for 85% of total emissions, is estimated to reach $275 trillion between 2021 and 2050. As illustrated in Figure 5, this is equivalent, on average, to around $9.2 trillion per year and necessitates an annual increase of $3.5 trillion from current levels. In addition, while the transition would create new job opportunities, resulting in a gain of around 200 million direct and indirect global jobs by 2050, a total of 185 million jobs will be lost in the process.
Figure 5 – Annual Capital Spending for Energy and Land-Use Systems Transition, 2021-2050, $ trillion
Source: McKinsey & Company.
The transition to a net-zero economy presents a unique opportunity for businesses to drive economic growth and innovation. By embracing this transition and managing it effectively, businesses can create new economic opportunities and improve their competitiveness. According to a study by Deloitte, the climate transition can present a $3 trillion economic opportunity for the U.S. economy if it rapidly decarbonizes over the next five decades. This presents one of the biggest economic opportunities for the country, adding around 1 million extra jobs by 2070. Nevertheless, insufficient action on climate change or a poorly managed transition by the U.S. could cost the economy $14.5 trillion by 2070, equivalent to around 4% of the gross domestic product (GDP). Moreover, over the next 50 years, around 900 thousand jobs could disappear per year because of climate damage.
The Bipartisan Infrastructure Law and Climate Resilience
Climate change exposes the country’s infrastructure to major risks every year. To address this issue, the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law, was signed by President Biden on November 15, 2021, to bolster investments in infrastructure and create jobs, while putting climate change resilience at the core. The bill provided unprecedented levels of investment for infrastructure, with $550 billion allocated in new spending over five years and $650 billion allocated for existing programs, summing up to a total of $1.2 trillion in infrastructure investments. Investments through the act prioritize building resilient infrastructure that can withstand the impacts of climate change. Over $50 billion of the bill is dedicated to protecting and building resilience (Figure 6).
Figure 6 – The Bipartisan Infrastructure Law and Climate Resilience
Source: Adapted from Georgetown Climate Center.
Amongst the most significant examples of those investments are:
- $8.7 billion funding for the “PROTECT – Promoting Resilient Operations for Transformative, Efficient, and Cost-saving Transportation” Program, to improve the resilience of transportation infrastructure, communities, evacuation routes, and at-risk coastal infrastructures.
- $8.3 billion funding for Wildfire Management, including a collection of programs with the objectives of detecting and reducing the risk of wildfires, establishing firefighter workforce reforms, and developing more resilient infrastructure.
- $7.0 billion Investments in Resilience through the Army Corps of Engineers, which allocates funding to Army Corps’ projects, especially for those related to risk management of coastal storms and inland floods, the reduction of storm- and hurricane-related damage, and the restoration of aquatic ecosystems.
- $3.8 billion for Western Drought, which provides funding to help communities in the western regions fight drought, through investing in water storage, water efficiency, water reuse, and dam safety projects.
- $3.5 billion for the “Flood Mitigation Assistance” Grant, providing technical and financial assistance to states and communities to promote activities that reduce the risk of flood damage, such as buyouts, elevations, and floodproofing.
How is the Inflation Reduction Act Serving Adaptation and Resilience?
In a previous article, we explained the detailed provisions and subsidies of the Inflation Reduction Act (IRA) and how it marked a historical milestone in the U.S. fight against climate change, with a total climate bill of $369 billion. While the bill mostly focused on climate mitigation and energy transition investments, it also included several provisions that aimed at strengthening climate adaptation and resilience.
The IRA has been commended for adopting holistic action to tackle the present and future challenges facing the U.S. that will boost the fight for resilience. The bill incorporates crucial elements of resilience, including the upgrade of infrastructure and climate justice provisions for health risks that target underprivileged communities.
For example, the inflation reduction act provides:
- $19.5 billion funding to five Department of Agriculture programs, including the Environmental Quality Incentives and the Conservation Stewardship Programs, which assist farmers, ranchers, and forest landowners in strengthening climate resilience and adopting climate-smart agricultural practices.
- $9.7 billion of funding to the Department of Agriculture to support rural communities, through investing in and improving the reliability and resilience of rural electric systems against climate hazards.
- $3.0 billion of funding in Environmental and Climate Justice Block Grants, to address the impacts of climate change and pollution on the environment and public health, by investing in community-led projects that monitor air pollution, mitigate extreme heat, and increase adaptation and resilience.
The bill also provides a significant boost to a little-known Department of Energy program called the Loans Program Office. This group has loans and loan guarantees available to help deploy innovative clean energy, advanced transportation, and tribal energy projects in the United States. Over the past decade, LPO has closed more than $30 billion of deals across a variety of energy sectors. IRA spending now provides this group with about $350 billion in additional loan authority with $250 billion towards energy infrastructure reinvestment, $40 billion for innovative clean energy, $40 billion for advanced technology vehicles manufacturing and $18 billion for tribal energy.
A Government-Wide Approach to the Climate Crisis
Given the massive economic cost that climate change could impose on the U.S., it is important that the country carefully manages its climate risks and sufficiently adapt to the impacts of climate change. As part of the government-wide approach to tackle the climate crisis, and with the Bipartisan Infrastructure Law and the Inflation Reduction Act at heart, federal agencies are directed to develop their climate adaptation action plans and regular progress reports.
In 2021, President Joe Biden took action to address the climate crisis by issuing Executive Order 14008, which called for a government-wide approach to tackling the crisis. As a result, major federal agencies were required to develop plans to address their most significant climate risks and vulnerabilities. In October 2021, more than 20 federal agencies released their 2021 Climate Adaptation and Resilience Plans, which outlined steps they were taking to address major climate risks that could affect their operations, facilities, supply chains, workers, grants, and contracts. In addition, in October 2022, federal agencies released their 2022 Climate Adaptation Progress Reports, which highlighted their ongoing efforts to address climate risks and demonstrated their commitment to adapting and building resilience to the impacts of climate change.
A total of 23 federal agencies released their climate adaptation plans and progress reports, as shown in Figure 7 below.
Figure 7 – List of Federal Agencies Releasing the Climate Adaptation and Resilience Plans
Source: The White House.
- Developing Clean and Resilient Energy Supply Chains, by the Department of Energy
As we transition towards clean energy, it is essential that we not only focus on mitigating emissions but also address the potential risks and vulnerabilities in the sector. A secure and resilient clean energy supply chain is critical for capturing the massive economic opportunity that this transition presents, and it is possible to develop such a supply chain by incorporating and addressing the impacts of climate events. For instance, hurricanes have been the main driver of power outages and have caused almost $1 trillion in damages and thousands of deaths in the US over the past four decades. Just consider the impact of Hurricane Sandy in 2012, which left over 8 million homes and businesses without electricity, or Hurricane Ian in 2021, which resulted in power outages for almost 2 million customers in Florida, equivalent to 15% of the state. By addressing these vulnerabilities, we can create a more resilient energy supply chain that is better able to withstand the impacts of climate events.
The energy infrastructure is the backbone of the U.S. economic activity, health, and safety; hence, it is critical that the system becomes robust and resilient to climate risks. Through its climate adaptation action plan, the Department of Energy aims to strengthen the reliability of major energy supply chains, particularly by adding high-power, high-capacity batteries that can store and backup energy generation. Technologies such as “solar-plus-storage” or “resilient PV”, for example, include storage capabilities as well as inverters, which automatically disconnect the system when an outage affects the grid, and have proven to be resilient in providing some power during system outages.
- Using Climate Intelligence to Safeguard Federal Investments, Department of Defense
The Department of Defense (DOD) released its DOD Climate Assessment Tool, a web-based collection of scientific climate data to support decision-making through research and analysis of historical extreme weather, exposure assessments, and prediction of foreseeable climate events. The DOD has around 5,000 locations worldwide, with varying levels and factors of climate risk. It provides a valuable tool that can support officials in mitigating potential harm through better adaptation and prioritizing where to best invest resources.
Using the assessment tool, the DOD expanded the number of its major installations from 157 to over 1,900. For example, Tyndall Air Force Base in Florida is creating an “Installation of the Future” that is resilient to the impacts of climate change, where operations and facilities can rapidly recover, rebuild, and resume business as usual. In the wake of the destructive Hurricane Michael in 2018, Tyndall Air Force Base experienced significant damage – including the destruction of 500 buildings and a loss of over $5 billion.
- Integrating Climate Risk in Major Solicitations, by the General Services Administration
As the U.S. federal agency responsible for procuring products and managing the supply of services and assets to support all federal agencies and offices, the General Services Administration (GSA) plays a crucial role in ensuring the smooth functioning of the federal government. With a workforce of nearly 12,000 federal employees and a portfolio that includes over 370 million square feet of workspace, 500 historic properties, and more than 200,000 vehicles, the GSA is the custodian of a vast array of assets that are vital to delivering services to American citizens. With a total value of almost $500 billion, the GSA’s assets, facilities, and supply chains are critical to the functioning of the federal government. That’s why it’s so important to ensure that these assets are resilient to the impacts of climate change.
Between 2021 and 2022, the GSA has successfully incorporated climate risk requirements into multiple major solicitations and operations, to assess and manage potential risks, spending over $400 million for such purposes. To reduce future financial risks, the administration integrated climate risk into long-term property, acquisition, and digital objectives of its strategic plan. Specifically, contractors are now required to submit climate change risk management plans that identify threats and specify means for addressing them. Moreover, climate literacy training programs were provided for the offices responsible for implementing the climate risk management plan. Additionally, a working group responsible for developing the next five-year environmental justice strategy has also been reconvened at the GSA.
- The U.S. Climate Resilience Toolkit, in Cooperation of Multiple Federal Agencies
As part of the U.S. Global Change Research Program, the National Oceanic and Atmospheric Administration (NOAA) of the Department of Commerce, in partnership with the National Aeronautics and Space Administration (NASA) and other federal agencies, led the development of the U.S. Climate Resilience Toolkit. The Toolkit provides a website that offers an easy-to-use one-stop shop of information, data, expertise, and tools from all the different federal agencies, to help people, communities and businesses understand climate risks and build resilience.
Overall, the website includes over 300 Toolkits managed by different agencies, to enable better and informed decision making by people, businesses, and communities. For example, the Resilience Toolkit offers the ACIS Climate Maps, managed by the High Plains Regional Climate Center, which provides access to a collection of user-friendly temperature and precipitation maps across all states. Another example is the Agricultural Conservation Planning Framework, which allows landowners, researchers, and conservation planners, through a Geographic Information Systems framework, to identify suitable locations for conservation practices and to better manage watershed runoff while supporting agricultural production.
Climate Adaptation and Resilience at the State Level
So far, we’ve reviewed some of the climate adaptation and resilience efforts happening at the regulatory and federal levels. Adaptation efforts are crucial at all the different country levels. Many examples exist of how states are taking action to protect themselves and their residents against the impacts of climate change. In this section, we review two of those examples in the states of California and Maryland.
California: Preparing for Increased Wildfire Risk and its Impact on Public Health
Wildfires present a frequent risk to the state of California and are expected to further increase in frequency and intensity due to climate change. California has the highest risk of wildfires among all U.S. states, with a total of 9,280 wildfires in 2021 burning more than 2 million acres (almost 2% of the state’s surface area). The year 2020 was especially devastating for California, with four out of the five severest wildfires in the state’s history happening that year, burning almost 12 million acres, or around 12% of its surface area. One of the major impacts of wildfires is on air quality deterioration associated with the increase in the number of air particulates, which can lead to serious health impacts.
To address this issue, California carefully tackles wildfire risks within its Climate Adaptation Strategy to adapt to the increasing future risks of wildfires and their impact on air quality. Some of the strategies adopted include:
- Assessing the Risk and Impact of Wildfires: In 2018, the state developed its fourth California Climate Assessment, which deeply analyzed climate projections and wildfire impacts. Through using global climate models, projected temperature changes are simulated under different emission scenarios to create a climate threat index for forests and a Fire Hazard Severity Zone Map. Moreover, the risk of wildfire from climate change and the resulting impacts on air quality are constantly incorporated in public health risk assessments while safeguarding and implementing a suitable action plan for the public health sector.
- Mitigating the Potential Risk of Wildfires: In its climate adaptation strategy, California identified several adaptation and resilience strategies to mitigate wildfire risk, including fire suppression efforts and institutional capacity building to monitor and reduce the risk and its impacts. Efforts are also put in place to increase public awareness and preparedness through providing funds to projects related to hazard reduction, as well as fire prevention planning, education, and training. Moreover, by making climate data available for research and adaptation planning, Cal-Adapt, a web-based climate adaptation planning tool, enables communities to identify and adopt adaptation and resilience strategies to deal with the rising risk of wildfires.
Maryland: Analyzing Coastal Vulnerability to Climate Change
With its long 3,190- mile coastline, the state of Maryland is susceptible to sea-level rise and coastal erosion. The state has already lost several islands and a considerable part of its shoreline. Scientists estimate that in 80 years, shorelines will diminish by 141 yards in Baltimore and close to a quarter of a mile (440 yards) in Dorchester County. In addition, the coastal wetlands are highly vulnerable to climate change due to the high risks of storms, flooding, and sea-level rise, with the latter occurring at almost double the global average rate.
To address this problem, Maryland’s Departments of Natural Resources and the Environment are continuously assessing the risks and implementing wetland restoration and conservation programs. Some of the programs implemented include:
- Acknowledging the Threat and Analyzing Vulnerability: In 2008, the Maryland Commission on Climate Change, chaired by Maryland’s Department of the Environment, issued its Climate Action Plan, which stressed the vulnerability of the coastal areas to sea-level rise and storms and highlighted the need to adapt and build resilience. In a second phase, in 2011, the commission released its “Building Societal, Economic and Ecological Resilience” report, which recommended a collection of actions to address the risks of climate change, among which was the suggestion to use projections of climate events, vulnerable species and habitats to better inform land management and protection strategies.
- Utilizing Data and Climate Intelligence to Identify Priority Areas: Maryland utilizes the Sea Level Affecting Marsh Model (SLAMM), provided by the U.S. Climate Resilience toolkit, to simulate wetland migration and distribution under the projected sea levels for 2050 and 2100, based on the different emissions scenarios provided in the earlier state’s Climate Action Plan. Results and analysis of the SLAMM are publicly published on the Maryland Coastal Atlas, a Geographic Information Systems Dashboard, to encourage its incorporation into public and private coastal conservation efforts. For example, the state constantly feeds the SLAMM analysis into its GreenPrint mapping system, which highlights lands and watersheds of high-ecological value and conservation priorities.
Conclusion as Opportunity Awaits
As stated in the beginning, the fight against climate change presents a massive opportunity for economic growth. Both the government and private sector are investing heavily in efforts to address this critical issue, and these efforts will touch nearly every business in some capacity. Savvy businesses that align their strategies with this trend stand to profit from the resulting spending surge. Moreover, climate change is a critical issue that is affecting people and businesses all over the world, including in the United States. From extreme weather events to long-term shifts in temperature and precipitation patterns, the impacts of climate change are being felt by communities across the country. As a major contributor to global emissions, it is important for the United States to take a leadership role in addressing this issue, both by reducing our own emissions and by investing in efforts to adapt and build resilience to the impacts of a changing climate. In fact, a 2020 survey found that more than 60% of Americans believe that climate change is already affecting their communities, and almost two-thirds think that the federal government is not doing enough to address the issue. It is clear that addressing climate change is not only a moral imperative, but also a business necessity and opportunity.
We’ve come a long way since 2020. Over the last two years, the two important legislations for climate action and adaptation – the Bipartisan Infrastructure Law and the Inflation Reduction Act – have been passed, allocating unprecedented investment in U.S. history for climate mitigation and adaptation efforts. The White House estimates that the Inflation Reduction Act could curb climate damages by approximately $2 trillion by 2050. Moreover, through a government-wide approach, federal agencies have set their plans for boosting adaptation and resilience and are constantly updating and monitoring their progress. Actions and efforts are also evident at the more decentralized levels of the states, cities, tribal, and regional levels. Finally, as climate impacts increasingly affect daily lives and economic activities, we are also starting to see individual efforts by businesses and households.
For businesses, it is essential they address the issue of climate change and build resilience in order to ensure the long-term sustainability and success of their operations. This requires a two-pronged approach: reducing our carbon emissions and transitioning away from fossil fuels to slow the pace of climate change, and investing in adaptation measures to prepare for the short- and medium-term impacts of a changing climate. These all raise costs for businesses and favor larger firms who have the larger resources. Yet, there remain opportunities for smaller firms to be nimbler and adapt faster to the changes in regulations and subsidies.
To sum up, adapting to climate change and building resilience is critical for the U.S. This requires a two-pronged approach: reducing our carbon emissions and thoughtfully transitioning away from fossil fuels to slow the pace of climate change, and investing in adaptation measures to prepare for the short- and medium-term impacts of a changing climate.