Climate risks and opportunities for communities become more apparent with each extreme weather event or transition from old technology to the latest innovations. For local governments, climate impacts and the shift to a low-carbon economy can impact nearly every aspect of their finances, from public assets and expenses to liabilities and revenue streams. As the pace of change accelerates, local leaders who understand how exactly climate change can impact the fiscal health of their governments will be far better equipped to help steer their communities to a thriving future.
The latest C2ES publication, Climate-related Financial Risks and Opportunities: A Primer for Local Governments, outlines the potential benefits of gaining a clearer picture of these risks and opportunities and offers local governments resources for integrating climate resilience into local financial planning.
The financial risks can be deep. The atmospheric river storms that pummeled California for weeks have caused extensive damage in as many as 40 of the state’s 58 counties. Total costs could reach as much as $1 billion for debris removal, emergency protective measures and equipment, plus repairs to public utilities, roads, bridges, buildings, and parks.
Meanwhile, the gradual shift to the technology of the low-carbon economy can also lead to a near-term shuffle to adapt to the transition. Communities in Clermont County, Ohio, offer an example of how local governments are confronting the financial cost of the transition to a low-carbon economy.
Coal-fired power plants along the Ohio River have provided local governments with tax revenue for decades, with some municipalities getting as much as 30 percent of their tax revenue from the operators, funding roads, fire stations and schools, and a community center. But now that the William H. Zimmer coal plant has closed in 2022, five years ahead of schedule, the future is uncertain for overcoming the budget shortfalls. Helping small communities like those in Clermont County plan for energy transitions before they happen is an important step highlighted in the just-released Coal Cost Crossover report.
Alongside the financial risks like those described above, local governments are also presented with financial opportunities from climate resilience and the economic transition. Most notably, climate resilience measures and low-carbon technologies can reduce government risk and expenses in significant ways. In addition, federal and state grants and loans can help communities build their resilience, reduce greenhouse gas emissions, and accelerate the low-carbon transition. The 2021 Infrastructure and Investment Jobs Act (IIJA) and the 2022 Inflation Reduction Act (IRA) are making billions of dollars available to local communities to accelerate investment in resilience and the low-carbon economy. For example, financing opportunities like the Department of Energy’s Energy Infrastructure Investment program channel low-interest loans to help re-tool and replace fossil-fuel infrastructure, representing a unique opportunity for communities where fossil fuel industries play an important but diminishing role.
In addition to IIJA and IRA funding, policy changes and new financing options present novel revenue opportunities. Local governments can approach these financial resources as opportunities to advance local priorities, support strong fiscal management, and position their communities for a thriving future.
By understanding the potential positive and negative financial impacts of climate-related risks and opportunities, local leaders can make better decisions. They can use the data to compare climate risks across assets or budget areas and to inform investment priorities and risk-management decisions. It can also prepare local governments for a growing number of climate risk disclosure requests from external stakeholders such as investors and credit rating agencies.
The C2ES primer outlines these benefits and introduces potential financial impacts relevant to local governments. It offers science-based tools and other resources to help public sector entities begin to assess their climate risks and opportunities. The primer also considers how climate risk disclosure by entities around the world and addressing key gaps might lead to more U.S. communities adopting the practice. Local governments can no longer afford to ignore how climate change affects public finances. Understanding climate-related risks and opportunities will help them position their communities to succeed and thrive in a low-carbon economy.