Should the government pay you for your bad climate decisions?

Recently, a podcast episode caught my attention. “Should the government pay you for your bad climate decisions?”

I listened to The Daily, as I was driving between farms in Georgia, where the effects of climate change are evident. Michael Barbaro speaks with New York Times climate reporter Christopher Flavelle about whether or not the United States should pay for the consequences of people’s bad behavior. Flavelle argues that the government has been paying for bad climate decisions for decades through taxpayer-funded disaster relief, and that this will only increase as climate change worsens. However, he also notes that it’s important to consider how to incentivize better decision-making in the future. Some experts suggest that the government should limit construction in vulnerable areas, while others believe in taxing carbon and using the revenue to fund adaptation efforts.

What sparked this question? The Biden Administration released the Economic Report of the President in the first quarter of 2023, which highlights the current state of the environment, identifies environmental challenges, and outlines actions that can be taken to address these challenges. The administration recognizes that climate change is a significant threat to public health, the environment, and the economy, and emphasizes the need for immediate action to reduce greenhouse gas emissions. 

The report calls for increased investments in renewable energy and clean transportation, as well as stronger regulatory and policy frameworks to protect the environment. It also highlights the importance of adaptation strategies to address the impacts of climate change that are already being felt and details the myriad of ways it is reconsidering whether or not the previous spending trends make sense, given the trajectory of the climate crisis. 

Moral hazards are undermining agriculture 

The report discusses the concept of "moral hazard" in insurance markets, which refers to a situation where having insurance can make people take more risks because they are less worried about the potential consequences of their actions. This can lead to higher costs for insurance companies and even make private insurance markets collapse. Programs that shift the cost of hazards can also cause moral hazard distortions if they are not structured carefully. For example, subsidized crop insurance can reduce the incentives for farmers to adapt to extreme heat, leading to higher sensitivity to heat in insured crops.

According to the report, public wildland firefighting can provide an implicit subsidy reaching up to 20% of home values in low-density wildfire-prone areas. A similar indirect subsidy for building in flood-prone areas has led to an increase in the number of people and property in risky areas. The moral hazard issue not only applies to individuals, but it also applies to state and local governments. 

Many decisions regarding reducing the costs of weather-related disasters, such as zoning, building codes, and land-use management, are made at the State or local level. State and local governments see benefits in growth and tax revenues, but they are shielded from the full costs of risky development because the federal government assumes disaster risk through the NFIP and disaster relief programs. Some states have seen rapid development in areas exposed to coastal flooding due to sea-level rise, with local governments allowing two or three times more construction in these risky areas than in safer regions.

Climate change is real and it’s here

Heat waves are happening more often and causing more problems than they used to. In many parts of the United States, the time period where there are heat waves is almost three times longer than it was in the 1960s. In the summer of 2022, 400 locations in the United States broke their monthly temperature records.

These are undeniable facts. The longer it takes for systems and policies to recognize the threats of climate change, the higher the threat to food security.

A complex problem calls for a complex response

Unprecedented extreme events are exposing the weaknesses of aging U.S. infrastructure, which was designed to operate in different climate conditions. Because of the volatility of the climate crisis, the United States will need to rebuild and redesign its infrastructure, agricultural system, and supply chains to incorporate more regionalization and redundancy to buffer against more frequent disruptions. 

The way goods are produced and traded globally is very complicated, so extreme weather events anywhere in the world can cause problems for American producers and consumers. As climate change makes extreme weather more common, there's a greater risk that multiple events will happen at once, which will create bigger threats to supply chains. For example, in the summer of 2022, extreme heat and drought in the US, Europe, and China disrupted global production and caused problems for industries like agriculture and electronics.

Climate change can cause problems for countries that are already struggling, making conditions more unstable and leading to conflicts. This can also cause people to leave their homes and migrate to other countries, which can evolve into a humanitarian crisis and political sticking point for the United States. 

Grow Well’s impact

Grow Well recently completed an engagement for a multinational agriculture company examining water risks in several North American water basin regions and how they are expected to change over the next 10-15 years under various emissions and production scenarios. We used tools like the U.S. government’s recently launched Climate Mapping for Resilience and Adaptation (CMRA) alongside materiality indicators to help our client prioritize their engagement on adaptation. 

Additionally, I’m working with the National Academies of Sciences, Engineering, and Medicine in as a member of the committee to advise the U.S. Global Change Research Program to define U.S.-focused scenarios, or combinations of emissions and socio-economic pathways, to guide the 14 federal agencies in their work to develop research and tools to support adaptation to our future climate realities. 

So… should the government pay for your bad climate decisions?

I would also answer that question with a resounding, “No!” 

The United States needs to shift how it spends taxpayer money from reimbursing Americans for their bad climate decisions to encouraging and supporting them to make better climate decisions.

Trying to understand how climate change will impact your business or supply chain? Working to enact more climate smart policy? Get in touch to learn how we can support you.