Climate Change - State and Local Governments Step Up

IN THE PUBLIC EYE

Climate Change - State and Local Governments Step Up

Author: Alliant

As climate change worsens, its impact on public entities, among others, continues to increase. Because there is an inability at the federal level to reach agreement as to some of the most significant steps necessary to address carbon emissions, the major cause of climate change, the pressure on state and local governments to act sooner rather than later grows.

In 2021 alone, increased global temperatures contributed to 20 weather-related disasters in the United States with losses in excess of $1 billion each.ⁱ In the entire decade of 1980-1989, there were only 31 such events.ⁱⁱ In the decade 1990-1999, there were only 55 of them.ⁱⁱⁱ The number increased to 67 in the first decade of the 2000’s and then jumped to a total of 150 between 2010-2020.^iv Despite this jump, the fact is that for the entire 40 year period of 1980-2020, the average number of weather-related disasters with losses exceeding $1 billion each averaged only 7.40 events annually in the U.S.^v With a total of 20 such events in 2020 alone and another 15 in 2022, it is clear that the substantial increase in the number of these events has become a major factor negatively impacting the financial well-being of the country.

In 2021, global insured property losses resulting from natural disasters totaled $130 billion.^vi This represents a 76% increase above the average amount of such losses in the 21st century and is 18% higher than in 2020. A single event, Hurricane Ida in the United States, was the largest insured loss event in 2021 and the 4th costliest hurricane ever with $36 billion in insured losses.^vii

Because of these increasing numbers and the resulting unpredictability of the risks being insured against, standard catastrophe risk models may no longer be reliable. In the face of this uncertainty, the market is reacting by increasing premiums for property coverages and, in many cases, offering less favorable terms and conditions.

With time being of the essence according to most experts on climate change, the U.S. government has begun to quantify the cost of inaction for taxpayers. In April of 2022, the White House Office of Management and Budget (OMB) released the first ever financial analysis of how unchecked global warming is impacting the federal budget, the economy, and the costs of climate related programs.^viii According to the analysis, the current warming trends will result in the following:

a reduction of the country’s gross domestic product (GDP) (economic output) by 10% by the end of the century, or annual revenue loses to the federal budget of 7.1% or $2 trillion. In 2022, the entire White House proposed budget for the federal government was $5.8 trillion.
an increase in the costs of the 6 types of federal disaster related aid programs (insurance and post disaster aid) anywhere from $25 billion to $128 billion by the end of the century, with annual hurricane-related disaster response costs alone amounting to as much as $94 billion annually.
an inability to quantify the costs of climate risk such as changes to ecosystems and infrastructure expenditures, but analysis nevertheless predicting that the cost to public health and businesses “will be larger than the impact on our fiscal balance sheet.”

Climate change is already negatively impacting the financial well-being of state and local governments, according to Moody’s Investors Services, the global credit rating agency. Moody’s reported in late 2017, that for state and local issuers, climate change would soon be a growing negative credit factor for issuers without sufficient adaptation and mitigation strategies (leading at a minimum to increased interest rates).^ix More recently, in 2022, Moody’s doubled down on this prediction, stating in a new report that as climate change damage is increasingly clear, credit ramifications are also growing. The report observed that “because of the inertia and time lag involved in how carbon emissions affect the earth’s climate, the negative effects of climate change through 2050 are largely already locked in by emissions to date.” Consequently, “physical climate risk--the damaging storms, heatwaves, and wildfires that can affect a wide range of credits (business and government)—is an increasingly material credit consideration.” The risks “can affect entities’ current and future operating strategies, increase financial volatility, lead to higher insurance premiums, and increase or accelerate the need for resilience and adaptation investment or, ultimately, relocating,” all impacting credit quality, according to the report.^x

In 2022, the United States Supreme Court struck down the authority of the Environmental Protection Agency to limit greenhouse gas emissions from power plants,^xi one of the most significant sources of planet-warming pollution. Considering the seeming inability of any branch of the federal government to act to reduce carbon emissions, cities and states have been taking the lead.

According to a scorecard developed by RMI, a U.S. clean energy think tank, some states are already playing the role of climate leaders by championing “the investments and polices that will define climate leadership in the coming years and benefit public health, the economy, and emissions reductions in the decisive decade leading to 2030.”^xii The scorecard^xiiiidentifies 6 front runner states that are focusing on clean electricity, building electrification, and electric vehicle transition, among other initiatives. Those states are Colorado, California, Illinois, New Jersey, New York, and Washington. Together these 6 states represent approximately 1/5 of total U.S. emissions, and if successful in their plans, can reduce carbon emissions by close to 200 million tons by 2030.

In Colorado, for example, the legislature has passed more than 50 climate related laws since 2019. In 2019, the state’s governor ran and won election to office on a platform of Colorado becoming a 100% clean energy state by 2040. The most significant of the 2019 climate bills passed in Colorado is HB 126, which calls for the state to reduce emissions 90% below 2005 levels by 2050.^xiv This law was passed by an array of interests working together. Among them were representatives of the oil and gas industry workers’ unions. One of the key compromises that proved pivotal in passing the law was the creation of the Office of Just Transition that helps these workers find new jobs with an appropriation of $15 million in funding to support these efforts. The state’s largest electricity providers also supported the law and plan to close their last coal plants by 2030. Also instrumental in passing the bill was an agreement that incentivizes utilities to reduce their carbon emissions 80% by 2030 in exchange for a commitment not to further regulate 2030 emissions if they meet this goal.

In many cities and towns across the country, similar progress is being made. In the local government setting, it is often possible to remove partisan politics from the discussion of climate change and reach consensus. In the small town of Morris, Minnesota, for example, population 5000, traditional left and right leaning interests came together to agree on the Morris Model, an initiative that calls for reduced energy consumption of 30% by 2030, production of 80% of the county’s electricity by 2030 from renewable sources and the elimination of landfill waste by 2025.^xv According to the city manager, what guided the city and won support for the action were obvious benefits of lower energy costs and increased local economic activity due to locally produced power such as solar panels on the Morris community center, library, liquor store and city hall, electric vehicle charging stations and a composting program in progress.

In Phoenix, Arizona, heat and automobiles are ubiquitous. In 2021, to address climate change, the city focused on electric vehicle adoption and heat wave mitigation by allocating $6 million to plant trees, to install 40 miles of cool pavement lowering evening temperatures and to add 280,000 electric vehicles to city roads by 2030. The city developed the plan by bringing together government officials, representatives of the utility industry, auto manufacturers and environmental justice groups.^xvi

In Athens, Ohio, in 2018, 76% of voters supported a program for residents to pay a carbon fee of 0.2 cents per kilowatt-hour of electricity use. The program generated $100,00 in annual revenue for renewable projects. Now, Athens’ greenhouse gas emissions are among the lowest in the state per capita.^xvii

With limited reach, authority and funding, separate state and local actions are no substitute for a coordinated national strategy to address the alarming and growing problem of carbon emissions which are causing the increased number of climate disasters we are facing. However, states and local communities are leading nonetheless, and it is making a difference. In the future, state and local government success stories may eventually motivate the federal government to reach consensus and bring to bear the necessary power and commitment to avoid climate disaster in the future.

[i] https://www.ncei.noaa.gov/access/billions/events/US/2022?disasters%5B%5D=all-disasters/

[ii] https://www.ncei.noaa.gov/access/billions/events/US/2022?disasters%5B%5D=all-disasters.

[iii] https://www.ncei.noaa.gov/access/billions/events/US/2022?disasters%5B%5D=all-disasters.

[iv] https://www.ncei.noaa.gov/access/billions/events/US/2022?disasters%5B%5D=all-disasters.

[v] https://www.ncei.noaa.gov/access/billions/events/US/2022?disasters%5B%5D=all-disasters.

[vi] https://www.iii.org/fact-statistic/facts-statistics-global-catastrophes.

[vii] https://www.iii.org/fact-statistic/facts-statistics-global-catastrophes.

[viii] https://www.whitehouse.gov/wp-content/uploads/2022/04/OMB_Climate_Risk_Exposure_2022.pdf.

[ix] https://southeastfloridaclimatecompact.org/wp-content/uploads/2017/12/Evaluating-the-impact-of-climate-change-on-US-state-and-local-issuers-11-28-17.pdf.

[x] https://www.investmentexecutive.com/news/research-and-markets/credit-risks-are-rising-alongside-sea-levels/.

[xi] https://www.supremecourt.gov/opinions/21pdf/20-1530_n758.pdf.

[xii] https://rmi.org/climate-goals-states-are-setting-for-others-to-follow/.