With COVID vaccines set to be widely distributed in 2021, the United States can look toward a sustained economic recovery. Climate resilience must be central to plans to shore up local economies and taxpayer investments. While many corners of the economy were caught off-guard by the pandemic, the economic and financial risks from climate change are increasingly well understood, and more importantly, increasingly apparent. The evidence is mounting that we cannot work to create a post-pandemic economy and leave the climate challenge for another day.
For instance, in November, the Financial Stability Board (FSB), an international body that promotes coordination among national financial authorities and common international financing standards, released a paper outlining the various implications of climate change on the financial sector. The FSB highlighted impacts on asset prices and market risks, management practices, lending, and insurance availability and pricing. The report adds to a growing chorus on the topic, including an October publication, “Managing Climate Risk in the US Financial System,” by the Commodity Futures Trading Commission’s Climate-Related Market Risk Subcommittee of the Market Risk Advisory Committee (MRAC). That report highlights dozens of ways the U.S. financial sector faces increasing climate risks and ways to mitigate them.
As the financial sector manages climate risks with increasing sophistication, other areas of society, including communities and local governments, must also prepare for the future even as they rebuild their economies. In our recently released report, “The Resilience Factor: A Competitive Edge for Climate-Ready Cities,” we explore how climate change and resilience activities will impact the economic competitiveness of U.S. cities. We found strong indications that communities must prepare for climate change impacts or risk falling behind. Cities that are taking steps to prepare for climate impacts will minimize negative outcomes such as climate-related asset damages, government revenue losses and credit downgrades, increased insurance premiums for public and private customers, and damaged local businesses. In addition, climate-ready cities stand to increase their tax revenues by protecting property values and ensuring continuity of municipal services and private businesses, creating new job markets for resilience solutions, increasing government borrowing capacity and investor confidence, and improving livability.
The incoming administration and Congress have an opportunity to adopt policies that help ensure communities can position themselves to thrive despite climate change. The federal government should:
- Establish a cohesive federal policy landscape, facilitated by interagency coordination, that focuses on pre-disaster mitigation over post-disaster funding. This resilience framework removes perverse incentives (such as creating an over-reliance on federal post-disaster funds), protects disadvantaged communities, and establishes sustainable and adequate funding streams for pre-disaster mitigation that limits local debt and cost-sharing. As we continue through the pandemic and move into recovery, cities and communities currently in difficult financial positions may find that new investments in resilience – even those with high rates of return and that address potentially devastating risks – are now more challenging to justify. Federal and state grants will become even more critical to ensuring that U.S. communities move efficiently toward resilience; a well-funded revolving loan fund for resilience would be good, and community block grants for resilience would be better. In the coming months, C2ES will be assessing the federal resilience policy landscape to understand funding trends and identify opportunities for greater cohesion and equitable investment.
- Establish a national clearinghouse that provides cities and regions with localized data on all climate hazards and technical assistance to assess and prioritize resilience measures. More specifically, agencies can offer tools and guidance to help ensure that cities and regions can quantify the costs of climate change on city budgets (e.g., municipal asset and property damages, lost revenues, diminished property values, increased maintenance costs). This will help localities prioritize risk mitigation measures and make informed investments.
- Establish protections and resources to guard against deepening inequality within and among cities and communities that are influenced by climate change- a particularly important step given the deep economic ramifications of the pandemic. For instance, the federal government should ensure that communities – particularly those which are disadvantaged and underserved by investment — are prepared for potential changes in mortgage lending, insurance pricing and availability, and investment decisions, and establish protections against any avoidable negative consequences. Additionally, any effort to price-in actual risk in National Flood Insurance Program policies should include protections for low-income policyholders, including premium discounts, loans, and flexible payment structures.
As we saw the devastating impacts of massive wildfires and an historically active Atlantic hurricane season while the pandemic ravaged our communities, the message was clear: climate change will not wait for us to be prepared. But we can and must help communities take action, even as we continue the hard work of mitigating and rebuilding from this devastating pandemic.