A Looming Financial and Economic Storm

While President Trump promises to end inflation through more oil drilling, a recent congressional report warns of “dangerous risks to the economy and the financial system” from climate change.

Screen shot from a Senate Budget Committee hearing on December 18, 2024 titled “Next to Fall: The Climate-Driven Insurance Crisis is Here—And Getting Worse”

On his first day in office as the 47^th US President, Donald Trump signed a stack of executive actions addressing everything from immigration to the economy to energy. In declaring a national energy emergency and ordering his administration to prioritize boosting fossil fuels, he claims those moves will be key to ending inflation and ushering in a “golden age” of prosperity. “We will bring prices down…and export American energy all over the world. We will be a rich nation again, and it is that liquid gold under our feet that will help us do it,” Trump said during his January 20 inauguration speech.

The United States is already the world’s top oil and gas producer, and environmental advocates were quick to criticize the president for leveraging a “false premise” in order to justify even more drilling.

“There is no energy emergency. There is a climate emergency. The United States is producing more oil and gas than any country in history,” said Manish Bapta, president and CEO of the Natural Resources Defense Council.

“Though Trump claims he is acting to reduce costs for consumers, his actions will only increase expenses for everyone, through higher utility bills, greater pollution impacts, and the overwhelming costs of climate change-supercharged disasters – all falling disproportionately on low-income families and communities of color,” Wenonah Hauter, executive director of Food and Water Watch, said in a statement. “Trump’s filthy fossil fuel agenda may benefit billionaires invested in the oil and gas industry, but it will hammer everyday Americans.”

As One Earth Now previously reported, there is a growing body of research warning that human-caused climate change, which is primarily driven by the heat-trapping emissions from fossil fuels, comes with enormous economic costs. From upending insurance markets to disrupting agricultural stability and global supply chains, climate-fueled disasters and extreme weather pose systemic economic risks and contribute to rising costs through what is being described as “climateflation.”

During the 118^th Congress, the Senate Budget Committee led by Sen. Sheldon Whitehouse (D-RI) held a series of hearings examining the looming financial and budgetary perils of the worsening climate crisis. Experts from a wide range of fields, from the insurance industry and central bankers to farmers and health care providers, testified at the hearings about what they are seeing and anticipating as global heating and its consequences intensify. And the overall message is clear. As the committee’s final report on the topic, released in December, states: “Climate change poses dangerous risks to the economy and the financial system, and is already imposing substantial costs on American families and on the federal budget.”

The report summarizes key insights from the committee hearings on the multiple ways that climate change adversely impacts the economy and threatens the financial system and Americans’ pocketbooks. Supply chain disruptions and agricultural damage, for example, are already happening and are expected to worsen with increasingly severe climate extremes that alter the physical landscape on which human economic activity, from global commerce to farming, takes place.

“Just as the pandemic wreaked havoc throughout our supply chains, climate change is poised to do the same, only much more frequently. In fact, it has already begun. We are seeing climate disruptions in the procurement of raw materials. At our hearing on climate change and the agricultural sector there was bipartisan agreement that extreme weather is damaging crop yields, and increasing food prices,” Sen. Whitehouse said in his opening remarks at an October 2023 hearing on how climate change threatens supply chains. He referenced an estimate from Carbon Disclosure Project that companies could face $120 billion in costs by 2026 from environmental risks in their supply chains, costs that would be passed along to consumers.

Extreme weather supercharged by climate change is making farming much more variable and is contributing to crop losses and damage, which can in turn lead to rising prices for affected agricultural commodities. While Trump’s answer to inflation and high grocery prices seems to be simply to drill baby drill, that will only unleash more greenhouse gas emissions that exacerbate climate change, further imperiling agricultural stability and risking elevating food prices even more. “Consumers see the impacts of climate change in their grocery bills,” the Senate Budget Committee’s report explains. When crop yields decrease, prices will rise; more climate-flation.”

Climate change and fossil fuel pollution increasingly threaten public health and drive up health care costs. A 2021 report synthesizing dozens of scientific studies pegged the health costs associated with climate change and fossil fuel use at $820 billion annually in the US.

Governments are further facing substantial costs to maintain and upgrade public infrastructure damaged or threatened by climate change impacts. “Increased temperatures, rising seas, and extreme weather do damage to the nation’s infrastructure, the costs of which will be borne by federal, state, and local governments, and ultimately by taxpayers,” the committee’s report states. The enormous costs of responding and adapting to climate-related disasters are creating significant challenges for already-strained municipal and state budgets and threatening the municipal bond market.

“We’re marching toward an uninsurable future in the United States.” - Dave Jones, former California Insurance Commissioner

Then there is the impending home insurance crisis, an emerging concern stemming from increasing climate-related hazards making some parts of the country virtually uninsurable. This development risks upending mortgage, insurance, and housing markets, threatening economic stability.

“Experts fear that if so-called climate insurance bubbles, ones that are now emerging perhaps in California and Florida and other high-risk areas, if those bubbles were to pop, that could trigger knock-on effects that threaten the global financial system, much as the housing bubbles in various parts of the world crashed the global economy in 2008,” journalist Mark Hertsgaard, executive director of Covering Climate Now, said during a January 22 press briefing on the topic of covering the climate-insurance nexus.

As physical climate risks rise, so do insurance premiums. As the committee report points out, the average American homeowners’ insurance premium increased 33 percent from 2020 to 2023. In some states especially vulnerable to climate disasters like Florida and California, private insurance companies are starting to exit residential property markets altogether. “We’re marching toward an uninsurable future in the United States,” Dave Jones, director of the Climate Risk Initiative at UC Berkeley who served a California’s insurance commissioner from 2011 to 2018, said during Wednesday’s press briefing. State-created insurance programs intended as a last resort, like California’s FAIR plan, are becoming overburdened, and catastrophic disasters resulting in billions of dollars in claims – like the LA wildfires – could overwhelm these programs, triggering an assessment that raises costs on all insurance policyholders in the state.

“As the former insurance commissioner of California, I can confirm that private insurance companies cannot continue to provide coverage at anything approaching affordable rates in the face of increasing climate-driven disasters,” Jones writes in an op-ed published this week in the New York Times. He argues that major fossil fuel companies that knew their products would cause “catastrophic” climate consequences should be forced to help pay for that damage. “States, cities and regulators urgently need to hold the oil and gas industry accountable for the devastation that fossil fuels cause,” Jones writes.

Some cities and states, including California, are already suing companies such as ExxonMobil and Chevron in an attempt to recover climate damage and adaptation costs. These lawsuits are grounded in the understanding that not only did Big Oil know of the detrimental impacts of unrestrained fossil fuel use, but that it downplayed or outright lied about these risks in order to protect its profits. “There is strong evidence that the oil majors knew that their emissions were going to cause this very outcome, and yet they misled, deceived, and lied to the American public about it,” Jones said.

In addition to climate liability litigation, some states are now pursuing legislation that aims to hold the largest fossil fuel producers financially responsible for helping pay for escalating climate costs. Vermont and New York enacted these so-called “climate superfund” laws last year, and other states could soon follow. California, for example, is expected to see a re-invigorated push to pass such a polluter pays climate bill this session in the wake of the devastating and enormously expensive Southern California wildfires. A version of the legislation made some progress last year but ultimately did not pass.

These accountability efforts, supporters say, are necessary amidst ballooning costs and increasing financial risks linked to climate destabilization that impact all of us as taxpayers and consumers. Ignoring the risks, obstructing climate action and accountability, and doubling down on the very industry that is fueling climate catastrophe – as the new Trump administration appears intent on doing – only serves to further enrich the ultra-billionaires while setting the rest of us up for economic hardship, it could be argued.

“Climate change is no longer just about polar bears and green jobs, it’s also about climate-flation: higher grocery prices, sky-high insurance premiums and growth in non-renewal rates, and instability in mortgage markets,” Sen. Whitehouse said in a December statement announcing that the nonpartisan Congressional Budget Office backed the committee report’s findings. “CBO is now affirming that climate change is bleeding Americans’ buying power and raising the possibility of a crash in property values. We dismiss its findings—and those of many credible experts before it—at our own economic and fiscal peril.”