    [Senate Hearing 118-008]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-008

                       CLIMATE-RELATED ECONOMIC RISKS AND
                       THEIR COSTS TO THE FEDERAL BUDGET
                               AND GLOBAL ECONOMY

    =======================================================================

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON THE BUDGET
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               February 15, 2023

                                   __________

               Printed for the use of the Committee on the Budget

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                www.govinfo.gov

                                    __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    51-948                        WASHINGTON : 2023

    -----------------------------------------------------------------------------------

                            COMMITTEE ON THE BUDGET

                   SHELDON WHITEHOUSE, Rhode Island, Chairman
    PATTY MURRAY, Washington             CHARLES E. GRASSLEY, Iowa
    RON WYDEN, Oregon                    MIKE CRAPO, Idaho
    DEBBIE STABENOW, Michigan            LINDSEY O. GRAHAM, South Carolina
    BERNARD SANDERS, Vermont             RON JOHNSON, Wisconsin
    MARK R. WARNER, Virginia             MITT ROMNEY, Utah
    JEFF MERKLEY, Oregon                 ROGER MARSHALL, Kansas
    TIM KAINE, Virginia                  MIKE BRAUN, Indiana
    CHRIS VAN HOLLEN, Maryland           JOHN KENNEDY, Louisiana
    BEN RAY LUJAN, New Mexico            RICK SCOTT, Florida
    ALEX PADILLA, California             MIKE LEE, Utah

                       Dan Dudis, Majority Staff Director
            Kolan Davis, Republican Staff Director and Chief Counsel
                       Mallory B. Nersesian, Chief Clerk
                      Alexander C. Scioscia, Hearing Clerk

                                C O N T E N T S

                                  ----------

                          WEDNESDAY, FEBRUARY 15, 2023

                    OPENING STATEMENTS BY COMMITTEE MEMBERS

                                                                       Page
    Senator Sheldon Whitehouse, Chairman.............................     1
        Prepared Statement...........................................    34
    Senator Charles E. Grassley, Ranking Member......................     3
        Prepared Statement...........................................    36

                        STATEMENTS BY COMMITTEE MEMBERS

    Senator Alex Padilla.............................................    15
    Senator Roger Marshall...........................................    16
    Senator Chris Van Hollen.........................................    18
    Senator Mitt Romney..............................................    20
    Senator Tim Kaine................................................    22
    Senator Lindsey O. Graham........................................    23
    Senator John Kennedy.............................................    26
    Senator Mike Braun...............................................    28
    Senator Mike Lee.................................................    30

                                   WITNESSES

    Dr. Mark Carney, Former Governor, Banks of England and Canada....     6
        Prepared Statement...........................................    38
    Dr. Robert Litterman, Founding Partner, Kepos Capital, and Chair,
      Climate-Related Market Risk Subcommittee, U.S. Commodity
      Futures Trading
      Commission.....................................................     7
        Prepared Statement...........................................    46
    Dr. Douglas Holtz-Eakin, President, American Action Forum........     9
        Prepared Statement...........................................    51

                                    APPENDIX

    Responses to post-hearing questions for the Record
        Dr. Carney...................................................    56
        Dr. Litterman................................................    59
        Dr. Holtz-Eakin..............................................    63
    Charts submitted by Chairman Sheldon Whitehouse..................    64
    Charts submitted by Senator Charles E. Grassley..................    65

                       CLIMATE-RELATED ECONOMIC RISKS AND
                       THEIR COSTS TO THE FEDERAL BUDGET
                               AND GLOBAL ECONOMY

                                  ----------

                          WEDNESDAY, FEBRUARY 15, 2023

                                               Committee on the Budget,
                                                           U.S. Senate,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:00
    a.m., via Webex and in Room SD-106, in the Dirksen Senate
    Office Building, Hon. Sheldon Whitehouse, Chairman of the
    Committee, presiding.
        Present: Senators Whitehouse, Merkley, Kaine, Van Hollen,
    Padilla, Grassley, Crapo, Graham, Johnson, Romney, Marshall,
    Braun, Kennedy, R. Scott, and Lee.
        Also present: Democratic staff: Dan Dudis, Majority Staff
    Director; Joshua P. Smith, Budget Policy Director; Melissa
    Kaplan-Pistiner, General Counsel.
        Republican staff: Kolan Davis, Republican Staff Director
    and Chief Counsel; Matthew Giroux, Deputy Staff Director;
    Krisann Pearce, General Counsel; Erich Hartman, Economist;
    Jordan Pakula, Professional Staff Member.
        Witnesses:
        Dr. Mark Carney, Former Governor, Banks of England and
    Canada
        Dr. Robert Litterman, Founding Partner, Kepos Capital, and
    Chair, Climate-Related Market Risk Subcommittee, U.S. Commodity
    Futures Trading Commission
        Dr. Douglas Holtz-Eakin, President, American Action Forum

              OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
    ---------------------------------------------------------------------------

        \1\ Prepared statement of Chairman Whitehouse appears in the
    appendix on page 34.
    ---------------------------------------------------------------------------
        Chairman Whitehouse. I am delighted to kick off the first
    Budget Committee hearing of this year by welcoming Ranking
    Member Grassley, who I serve with also on the Finance and
    Judiciary Committees, so we have a lot of experience together
    and I'm very happy that he's the Ranking Member.
        I want to welcome all the colleagues who will be in and out
    of the hearing this morning. We have multiple hearings going on
    and so you will be getting attendance sporadically from a
    considerable number of our members. I want to particularly
    welcome our new members to what I hope will be a busy, revived,
    impactful, and lively Budget Committee.
        I want this to be your surprise favorite committee. We have
    important work to do on bipartisan healthcare reforms, on
    reforming this Committee's process to fit the basic arithmetic
    of the budget and on issues important to each of you as
    members.
        We're going to begin with a series of hearings on the
    looming costs and economic risks of climate upheaval. Almost
    exactly five years ago, I sent around this binder to all of my
    Senate colleagues in which I complied some of the compelling
    warnings about the economic risks associated with climate
    change.
        Last week I sent your staffs an updated version of the
    binder. Here it is. As you can see, the warnings keep piling
    up. Have fun with the light reading. These warnings come from
    central bankers, economists, assets managers, insurance
    companies, investment banks, credit rating agencies, and
    leading management consultations. Folks with a lot of
    credibility when it comes to economics, finance, corporate
    risks and their effects on government spending and revenues.
    These will be our witnesses, economists, scientists, business
    leaders, and other financial and risk experts, many of whose
    work in this binder.
        I've said that science provides the headlights for society.
    That it's scientists who illuminate the way for us to navigate
    into the future. Think of the economists and scientists we'll
    hear from as the headlights for the United States Congress as
    this Committee helps navigate our long-term budget and fiscal
    priorities.
        Look at our national debt. One thing that stands is how
    much of it was incurred as a result of exogenous shots to the
    economy. Consider the 2008 financial crisis which blew up the
    financial security of families and businesses across the
    country and reduced government revenues for a decade. Two years
    after the recession, CBO found that projected revenues fell by
    $4.4 trillion and projected spending rose by $800 billion to
    spur that recovery.
        Consider the pandemic. The Committee for a Responsible
    Federal Budget estimates that the federal response to the
    pandemic which brought COVID under control, protected families,
    and jumpstarted our economy recovery will add $5.5 trillion to
    our deficits. That doesn't factor in lost revenue or lost
    economic activity, so the total economic cost is actually
    higher.
        We came through both. But together those two exogenous
    shocks contributed $10 trillion to the federal debt, more than
    40 percent of the total, proof of how catastrophic events can
    and do effect the federal budget and the economy and how life
    has a way of upsetting best laid plans and 10-year budget
    baselines.
        Headlights and better attention to what they illuminated
    could've help. Plenty of financial experts saw the 2008
    mortgage mess coming. Plenty of epidemiologist warned that the
    country was woefully unprepared for a pandemic.
        Now, we have all these warnings. Warnings of crashes in
    coastal property values as rising seas and more powerful storms
    hit the 30-year mortgage horizon. Warnings of insurance
    collapse from more frequent, intense, and unpredictable
    wildfires. A dangers interplay between the insurance and
    mortgage markets hitting real estate markets across the
    country.
        Inflation from decreased agricultural yields, massive
    infrastructure demand, trouble in municipal bond markets,
    stranded assets, and a carbon bubble. The most dangerous risks
    are called systemic. We mean that they will cascade out into
    the broader economy as the mortgage problem did in 2008, and
    it's big. It predicts the differential between being
    responsible and reckless about climate could come to more $220
    trillion, globally, between now and 2070.
        Some of these warn of risks are already upon us. Already
    climate-related national disasters increase federal spending on
    disaster assistance, flood insurance, crop insurance, and other
    programs we fund. But this is just the beginning. It will
    certainly get worse, much worse particularly if warming exceeds
    1.5 degrees. We are on a bad trajectory. It's time for us all
    to wake up and face the problem before coastal cities flood
    with water or southwest cities can't get water. I hope we can
    finish that off with action if we snap into focus on the
    danger.
        We're all familiar with the tragedy of the Commons. In
    2015, our opening witness, Dr. Carney, gave a speech entitled
    The Tragedy of the Horizon because some of the gravest dangers
    of climate change, which we could head off today, come to past
    years or decades out. Ryan's coastline will be gone, reshaped
    into an Acapulco by 2100.
        You say, ah, who cares? What's that? It's an eternity.
    Well, almost exactly a year ago I became a grandfather for the
    first time. Baby Vera, God willing, will be alive in 2100. When
    I look at her, I'm looking at that future. Walk by any
    elementary school, the faces you see on the playground, God
    willing, will be alive in 2100. How will those little ones
    remember our less than greatest generation? We owe it to kids
    on playgrounds all across America to pay attention to get this
    right.
        By the end of this series of hearings, if we hear these
    expert witnesses, if we treat their testimony as our
    headlights, then our path, I hope, will be clear. Thank you and
    let's get to work.
        Chairman Whitehouse. I turn to my Ranking Member, Senator
    Grassley.

               OPENING STATEMENT OF SENATOR GRASSLEY \2\
    ---------------------------------------------------------------------------

        \2\ Prepared statement of Senator Grassley appears in the appendix
    on page 36.
    ---------------------------------------------------------------------------
        Senator Grassley. Senator Whitehouse, I compliment you on
    your leadership on this Committee and look forward to the two
    years ahead. I'm pleased to be here with all of you as Ranking
    Member. Despite our political differences, and they aren't as
    great as the public believes between Republicans and the
    Democrats, and particularly between Grassley and Whitehouse. I
    know that we can find common areas of agreement to work on
    together.
        One area of agreement must be that our budget and
    appropriation process is broken. This sentiment isn't new at
    all nor is it particularly partisan. No person could look at
    last year's process and say that things are working. For Fiscal
    Year 2023, Congress didn't adopt a budget. The Senate
    Appropriations Committee didn't mark up a single bill and not
    one of the 12 individual appropriation bills was debated in the
    Senate floor.
        Instead, we were presented with a $1.7 trillion omnibus
    just a few days before Congress. Things need to change. Now,
    maybe we shouldn't be surprised because when the Senate goes
    into session at 3 o'clock on Monday and has one vote, hardly
    any business, and then you work all day Tuesday and all day
    Wednesday and adjourn at 1:45 on Thursday, you can't get a lot
    of session work done when you are just in session two and a
    half weeks compared to when I came to the United States Senate
    started no later than noon on Monday, debated on Monday,
    Tuesday, Wednesday, Thursday, went home Friday at 4:00. So, I
    think there needs to be some reanalysis of the work that we're
    putting--I mean not the work because there's plenty of work for
    senators, but the amount of time that we're in session.
        I want to applaud two leaders in this process, Senator
    Murray and Collins, for publicly announcing their commitment to
    regular order, including debating appropriation bills on the
    Senate floor. We need to do our part to make that happen. We
    should also agree that our nation's fiscal outlook is dire.
        The Congressional Budget Office will release an updated
    budget projection this afternoon. Every indication is that
    their new projections will be as bad as or worse than last
    summer's projection. This is what they told us last summer.
    Within 10 years, public debt, as a share of our economy, will
    exceed World War II record highs. However, unlike after World
    War II, when spending and debt subsided, our public debt is
    projected to climb even higher.
        Our public debt will reach 110 percent of our economy in
    2032 and grow to 185 percent by 2052. Trillion-dollar annual
    deficits will be replaced by two trillion deficits within a few
    years. Simply serving the debt will lead record-breaking annual
    costs of more than $1 trillion within 10 years.
        So, Mr. Chairman, your immediate predecessor refused to
    bring in CBO to discuss the overall budget outlook. This was a
    mistake. So, I urge under your leadership to hold a hearing
    with CBO on the latest outlook. Nobody benefits from just
    burying our heads in the sand. I acknowledge that a changing
    climate is a historic and scientific fact. I also recognize
    that most scientists agree man-made emissions contribute to
    climate change.
        Throughout my career, I've advocated for renewable and
    alternative energy solutions. Being the father of the Wind
    Energy Tax Credit in 1992, I think maybe I was doing that 10
    years before climate change was much of an issue. And so, today
    in Iowa we get 60 percent of our electricity from wind and in
    four years American Energy, Des Moines, Iowa, will be getting
    80 percent, 85 percent maybe more accurately, of their energy
    from wind.
        This being said, even if the entire U.S. stopped emitting
    greenhouse gas tomorrow, projected temperatures would only be
    three-tenths degrees Fahrenheit lower come 2100. Even in this
    unrealistic scenario, the U.S. would still need major polluters
    like China and India to pull their weight. As we look to
    address climate and energy issues, the nation must also address
    our fiscal health.
        There's plenty of blame to go around for how we got into
    our current situation. Republican or Democrats have to share
    this blame. For decades, Congress turned a blind eye as our
    nation walked toward a fiscal cliff, but Democrats turned that
    walk into a sprint. In March 2021, Democrats to advantage an
    emergency situation to pass a $2 trillion partisan spending
    bill, even as our economy showed strong signs of recovery. Then
    as inflation started to a 40-year high, they doubled down
    spending trillions more on their liberal wish list.
        They pushed through omnibus appropriation bills with take
    it or leave mantra for two years. Each time growing the size of
    the government when not using fast-track procedures or
    government shutdown as leverage, the Administration drove
    deficits through unilateral action like long giveaways that
    could cost taxpayers a trillion dollars.
        Congress needs then, it's very obvious, a fiscal reality
    check. And I know our Chairman is trying to bring that fiscal
    reality check by bringing up all of the issues that climate
    change is going to add to the budget and that's the correct
    thing to do. But this reality check has to start with this
    Committee getting back to performing core functions.
        This includes holding hearings on federal fiscal matters,
    examining programs and authorizations that have been on
    autopilot for decades and performing robust oversight of agency
    spending. No government entity should be exempt.
        Now finally, I welcome the opportunity to work with you,
    Senator Whitehouse, on budget process reform. You are a well-
    established leader on this issue. I appreciate your stated
    interest in working with the rest of us on this issue starting,
    and I'll be ready to join you anytime, from where we left off
    with Senator Enzi in 2019. It was bipartisan process then and I
    think we can build to get it over the finish line with this
    Congress.
        Needless to say, we have our work cut out for us to get our
    fiscal house in order. To paraphrase former fed chairman Paul
    Volcker, cutting spending may be painful, but the pain for all
    of us will be much greater if it isn't accomplished. So, I look
    forward to our work over the next two years.
        Thank you and let's get to work.
        Chairman Whitehouse. Thank you, Senator Grassley, so do I.
    And I mentioned the budget process reform in my opening remarks
    for a reason. I look forward to working on that and think
    there's plenty of blame to go around for where we are in terms
    of the deficit, but having a Budget Committee that actually
    looks at the elements of that in an arthritically correct way
    is a very, very good start.
        I am pleased to have three very distinguished witnesses
    here to testify before us today. Joining us remotely is Dr.
    Mark Carney, the former Governor of the Bank of Canada and the
    Bank of England. For those not familiar with that role, that's
    effectively the CEO. Dr. Carney is a world renown central
    banker and has long been sounding the alarm about the economic
    risks posed by climate change.
        Following Dr. Carey's testimony we'll hear from Dr. Bob
    Litterman, who chaired the Commodity Futures Trading
    Commission's Climate-Related Market Risk Subcommittee, which in
    2020 issued an authoritative report on this subject.
        Following Dr. Litterman, we will hear from Dr. Douglas
    Holtz-Eakin, former Director of the Congressional Budget Office
    and President of the American Action Forum. I note that back in
    2003 CBO prepared a report on the economics of climate change
    under Dr. Holtz-Eakin's leadership.
        Dr. Carney, if we have you here remotely, please take five
    minutes to deliver your remarks. Your prepared remarks are in
    the record of the proceeding.

    STATEMENT OF DR. MARK CARNEY, FORMER GOVERNOR, BANKS OF ENGLAND
                             AND CANADA \3\
    ---------------------------------------------------------------------------

        \3\ Prepared statement of Dr. Carney appears in the appendix on
    page 38.
    ---------------------------------------------------------------------------
        Dr. Carney. Thank you very much, Chairman Whitehouse,
    Ranking Member Grassley, members of the Committee for the honor
    of this invitation to address the risks and economic costs of
    climate change.
        During my terms as Governor of the Bank of England and as
    Chair of the Financial Stability Board, I headed committees
    with responsibility for understanding and addressing the
    principal risk to financial stability. Risks such as the Chair
    referred to in his opening comments.
        About a decade ago, these bodies became increasing
    concerned about the rising economic risk from climate change
    and the fact that the financial system lacked the information,
    the tools, and the markets to manage them. So, over the
    following years a wide range of regulatory authorities and
    private financial institutions had worked to develop the
    building blocks of a financial system that can manage these
    risks on behalf of their depositors, pensioners, clients, and
    shareholders.
        But while the pace of change has picked up, it's not yet
    equal to the scale of the challenge. Due to the undiversifiable
    nature of climate risks, governments will bear many of the
    costs of extreme weather and of adaptation. And moreover, the
    longer adjustment is delayed the greater the impact will be on
    financial stability, inflation, jobs, and growth.
        Diversely, transitioning to a low-carbon economy will
    reduce the impact of climate change, create jobs of the future,
    and promote a resilient financial system. I won't read it into
    the record the fact that the fiscal impacts of climate change
    are rising. I've reference in my testimony of the data
    collected by the EPA, the NRAA, NASA, amongst others, that
    provides a snapshot of how it's already impacting the United
    States.
        Climate change is having an increased impact on Americans.
    Adjusted for inflation, the number of billion dollar disasters
    has risen sixfold from the first half of the 1980s to an
    average of 18 per year over the past five years. Annual
    inflation adjusted cost of these disasters has risen seven
    times from $18 billion to $120 billion.
        Increased flooding and coastal erosion are causing
    significant damage already. Increases in weather-related
    disasters have lead to insurance becoming less available, more
    expensive for American families and businesses. Extreme weather
    is reducing incomes for farmers and raising food costs for
    families and the increased frequency and intensity of flooding
    and disasters disrupts and damages critical infrastructure, and
    in turn, supply chains hurting American businesses and raising
    costs again for American families.
        There is ample scientific evidence that these trends are
    expected to worsen as each additional fraction of degree
    warming means more frequent and intense hurricanes, coastal
    floodings, heatwaves, and wildfires. Estimates suggest that
    over the balance of this century climate change could reduce
    the level of global GDP per capita by between 10 to 20 percent
    without further efforts to limit warming. Similar estimates
    have been found for the United States.
        As economically significant as these estimates are, it's
    instructive to examine what's not included in them, both assets
    outside of the market economy, such as biodiversity and human
    health, as well as critical economic channels, including
    disrupted supply chains, risk to monitoring and financial
    stability, and economic impacts of rising risks to the national
    security.
        As temperatures increase and extreme weather events worsen,
    the cost to governments will increase further. Ultimately,
    governments--state, local and federal--will better cost the
    private households and businesses and markets are unable to
    shoulder, including meeting emergency needs, financing disaster
    recovery, and building resilience to future extreme weather.
        To conclude, the costs to property, agriculture, and
    livelihoods are already high and expected to grow materially.
    The hit to GDP growth from unmitigated climate change is
    expected to be significant and many of the most severe impacts
    to human health, to livelihoods, to natural heritage, are not
    included in these calculations.
        But there's one final risk from climate change, a negative
    risk, better known as an opportunity. Increased recognition of
    the risks of climate change is no galvanizing efforts to
    address the issue. Last year over a trillion dollars was
    invested in the energy transition, representing over 1 percent
    of global GDP and those investments are expected to rise
    significantly, creating more jobs and higher incomes.
        In short, while ignoring climate change will lead to
    significant costs, climate solutions are becoming one of the
    greatest commercial opportunities of our time. Thank you for
    your attention. I'll be pleased to answer your questions.
        Chairman Whitehouse. Thanks, Dr. Carney. We turn now to Dr.
    Litterman.

      STATEMENT OF DR. ROBERT LITTERMAN, FOUNDING PARTNER, KEPOS
     CAPITAL, AND CHAIR, CLIMATE-RELATED MARKET RISK SUBCOMMITTEE,
             U.S. COMMODITY FUTURES TRADING COMMISSION \4\
    ---------------------------------------------------------------------------

        \4\ Prepared statement of Dr. Litterman appears in the appendix on
    page 46.
    ---------------------------------------------------------------------------
        Dr. Litterman. Thank you, Chairman Whitehouse, Ranking
    Member Grassley, and members of the Committee. Thank you for
    inviting me to address the economic risks associated with
    climate change and the tremendous cost they may impose on
    Americans.
        This summer I visited Greenland to study the melting of the
    ice sheet. The icebergs calving from the glaciers are
    beautiful, but they represent the very beginning of what sadly,
    will be an inevitable acceleration of sea level rise, the
    timing of which, however, is both highly uncertain and depends
    critically on the actions that we take today.
        I want to focus your attention on time because time is a
    scarce resource in managing risks. Climate change is a long-
    term global risk management failure, but it must be addressed
    immediately because we don't know how much time we have. The
    United States has an urgent responsibility to do much more than
    it has to date. Our grandchildren face grave danger.
        Global sea level rise in this century, for example, is
    estimated to be between 2 and up to 10 feet, depending
    primarily on how quickly we reduce our emissions.
        Before I go any further, I'd like to tell you a little bit
    about my background as much of my work is highly relevant to
    today's subject. I am an economist by training and have spent
    my career managing financial risks. I worked at Goldman Sachs
    for 23 years. I was a partner and head of the firm Wide Risk
    Department.
        I now sit on several boards for groups that study and
    propose responses to climate risks, including the Climate
    Leadership Council and the Niskanen Center. No doubt, the
    reason I am here today is because in 2020 I chaired the CFTC
    Climate-Related Market Risk Subcommittee, which published a
    unanimous and widely cited report, Managing Climate Risk in the
    U.S. Financial System. We had environmental organizations, such
    as the Nature Conservancy and the Environmental Defense Fund,
    but also Agri business companies like Cargill and Bunge. Oil
    and gas companies like Conoco Phillips and BP, and banks like
    Morgan Stanley, J.P. Morgan Chase, and Citi.
        There was no collection of wide-eyed environmental
    activists nor were politics involved. This was a rigorous
    report with dozens of recommendations from hard-headed experts
    and we came to the unanimous conclusion that climate change
    poses significant risks to the American economy that must be
    addressed urgently.
        In the Agricultural sector, for example, we found that
    climate change is likely to significantly reduce crop yields,
    decrease labor productivity, degrade soil and water quality,
    increase the range and virulence of pests and disrupt supply
    chains. Climate change will also impose large costs on
    companies and governments.
        One example, the CFTC Report, highlighted with the case of
    Pacific Gas and Electric in California which entered bankruptcy
    because of $30 billion in liabilities associated with its
    infrastructure, sparking record wildfires. Extreme weather
    impacts are already here and are growing rapidly, including
    heatwaves, floods, hurricanes, drought, and wildfires.
        Meanwhile, the effects of climate change loom every larger
    in the future. Losses from billion-dollar extreme weather
    events totaled $165 billion last year. And while it varies from
    year to year, the costs from climate change are clearly growing
    rapidly. Extreme weather events are becoming more common as the
    atmosphere warms. Terms such as the 100-Year Flood are used to
    describe the magnitude of an event that has happened
    historically on average once every hundred years. That happens
    to be an important frequency.
        We build infrastructure to withstand events that happen on
    a regular basis and so the damage created by weather that
    happens regularly is small. But when a 100-year event occurs,
    the magnitude is so large that we're not prepared and it
    typically leads to complete destruction of property. The
    problem is that while such a term continues to describe the
    magnitude of extreme weather events the frequency of occurrence
    today tends to be much higher.
        Declining real estate values driven by climate-related
    impacts or the expectation of such impacts in the future could
    substantially depress regional economic activity in exposed
    areas. Climate change will also likely inflict large costs on
    human health and its impacts will fall hardest on those with
    fewer resources, increasing inequity.
        There are also a number of risks related to crossing a
    tipping point. A tipping point is a nonlinearity in the
    response of a system and there are a number of warning
    potential tipping points in the climatic system. More worrying
    still, recent scientific research suggests that we may cross
    several of these tipping points with even only at 1.5 degree of
    warming it may cross several additional ones with 2 degrees of
    warming.
        While the subject of this hearing is the economic risks and
    costs associated with climate change, I would be remiss if I
    did not mention one last thing. All of the research and
    analysis on this subject agrees that the sooner we act to
    reduce emissions the lower will be the expected costs and risks
    we incur.
        In addition, a rapid transition to a low-carbon economy
    will, by removing policy uncertainty, likely actually result in
    substantial investment and increased economic growth.
        I have lots of ideas on this subject, but the bottom line
    is that with global average temperatures already having risen
    over 1 degree C and with potentially catastrophic tipping
    points on the horizon, risk management demands an immediate
    response leading to globally harmonized incentives to reduce
    emissions.
        There are immediate steps that this Congress can take to
    move this process forward and I would welcome the opportunity
    to discuss the policies you might pursue to help the risk to
    the economy and ensure that prices reflect the actual costs
    associated with production of goods, including the damages
    created by carbon emissions. Thank you.
        Chairman Whitehouse. We look forward to taking you up on
    that offer, Dr. Litterman and turn to Dr. Holtz-Eakin.

       STATEMENT OF DR. DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN
                            ACTION FORUM \5\
    ---------------------------------------------------------------------------

        \5\ Prepared statement of Dr. Holtz-Eakin appears in the appendix
    on page 51.
    ---------------------------------------------------------------------------
        Dr. Holtz-Eaken. Chairman Whitehouse, Ranking Member
    Grassley, and members of the Committee, thank you for the
    privilege of being here today. Let me make three points quickly
    and then I look forward to the chance to answer your questions.
        The first point is that climate change will have real
    impacts on the U.S. economy and these will worsen the federal
    budget outlook. Unquestionably, there will be additional
    outlays from the national flood insurance programs and other
    disaster crop risks kinds of programs and mandatory outlays.
    The Congress will probably chose to make some discretionary
    outlays in the future in response to the needs for mitigation
    and/or adaptation and these will worsen the budget picture, but
    the biggest impact is going to be lower revenue from an economy
    that grows more slowly over the long term and that the loss of
    some capital assets, diminished labor productivity, diminished
    productivity in agricultural lands will cumulatively reduce
    inflows to the federal budget.
        The Congressional Budget Office recently took a look at
    this issue and concluded that the center point of set of
    estimates for the impact would be about a percentage point
    lower in GDP by 2051. And I would just point out that while
    that's a significant impact it's tantamount to under a tenth of
    a percentage point slower growth each and every year.
        In contrast, and this point number two, the federal budget
    presents an immediate and much larger economic threat. We
    already have debt to GEP in the range of 100 percent and
    there's a large literature that stems from the work of Ken
    Rogoff and Carmen Reinhart indicates that countries in that
    range experience slower growth on the order of a percentage
    point per year because of their debt burdens. And the U.S. not
    only has entered that range it has a budget outlook which is
    unsustainable.
        The CBO will put out a revised Economic and Budget Outlook
    this afternoon at 2 o'clock. It will doubtlessly look like the
    one they put out last year that shows spending expending
    revenues as far as the eye can see, driven by very rapid growth
    in the outlays in Medicare at 7 percent a year, Social Security
    at 6 percent a year, faster than any revenue source could
    possibly grow and as a result it will show debt relative to GDP
    rising as far as the eye can see. The interest costs of
    carrying that debt rising as far as can see and that is a
    mechanism which is a guarantee for slower growth in the future.
        The point of the borrowing is not just the debt. The point
    is that that brings resources from the private sector into the
    government sector. And for every dollar you take from private
    investment and put into the best of federal infrastructure
    investments, you lose about 50 percent of the rate of return,
    so you're losing on every one of those borrowing activities,
    diminishing the productivity in the economy, lowering the
    standard of living for future workers in the next generations.
        We really don't spend a lot of money on investments in this
    program and more than likely we're going to take that money
    from a private investment and put it into a consumption
    expenditure. That's the point of Social Security and Medicare
    is to raise the standard of living in retirement for seniors.
    There's no rate of return to consumption investment, so the
    federal budget is the biggest headwind to economic growth
    because it is stacked against investing in the future and needs
    to be brought into some sort sustainable alignment in order to
    stop these headwinds to growth.
        The other point that's going on in the federal budget is
    that the mandatory expenditures are crowding out discretionary
    spending. Discretionary spending is where we do national
    security, basic research, infrastructure, education, all the
    places where you can invest in the future of the country and
    those opportunities are getting squeezed out by the growth of
    these mandatory programs.
        So, point number three, not only would getting the budget
    on a sustainable trajectory improve the economic outlook, it
    would free up the budget resources through investments,
    especially investments in the climate mitigation and adaptation
    that are so important to this Committee and to this hearing.
        And so, I can't think of a single bigger accomplishment
    than for this Committee and the U.S. Congress to finally come
    to grips with the federal budget outlook and its
    unsustainability. It lies at the crossroads of all the threats
    to our future and needs to be addressed as quickly as possible.
        I thank you for the chance to be here today. I look forward
    to your questions.
        Chairman Whitehouse. Thank you, Dr. Holtz-Eakin. I'll lead
    and then Senator Romney is next in line.
        Dr. Carney, you've held two of the most significant and
    powerful positions global in the banking sector. Climate change
    was not customarily a part of the banking sector's interest.
    Why is it that you took such an interest I addressing climate
    change?
        Dr. Carney. Thank you, Chair. It goes back, in part, to
    your opening comments, some of the points you made in your
    opening comments, which is that under-investing in resilience
    upfront leads to much greater costs down the road. And it was
    particular when I became Governor at the Bank of England and
    it's not commonly known, but one of the responsibilities of the
    Bank of England is to oversee the insurance industry and it's
    the fourth largest insurance industry in the world. It includes
    one of the largest, if not the largest, re-insurance market,
    the famous Lords of London, and so therefore that's a property
    in casualty and re-insurance industry that's directly affected
    by climate change.
        And one of the lessons that the brokers and the risk
    managers in Lord of London had determined was that the tail
    risk of the past were becoming the central scenario of the
    future. I'll refer to Dr. Litterman's comments about one in a
    hundred risk events becoming that much more frequent. So, of
    course they're adjusting pricing. They're adjusting coverage
    which as real implications for economies and it's apparent to
    us, as risk managers, that this will affect the economy more
    broadly and the financial system potentially more broadly if
    there is not adequate information to assess the potential
    degree of those risks. And if risk managers don't at least have
    the opportunity to determine whether or not they will take
    steps----
        Chairman Whitehouse. Dr. Carney, you were in charge of the
    Bank of Canada after the 2008 financial crisis. Can you compare
    what you foresee with respect to climate with what you
    experienced in the 2008 mortgage crisis?
        Dr. Carney. Well, there's two things that I would say. The
    first is that one of the experiences of that crisis, and many
    of the members, of course, lived through it and helped managed
    through it, is what's called a Minsky moment, a realization
    that basic assumptions were no longer true. For example, that
    health prices would never fall in the United States, that
    capital was money good, that assets off balance sheets would
    stay off balance sheets, all of those proved false and lead to
    the collapse or virtual collapse of the core, much of the core
    of the financial system with huge economic costs that
    ultimately have added to the debt burden of the United States,
    amongst other countries.
        Now, in Canada, we were more fortunate for a variety of
    reasons, but one of the reasons was we had put more resilience
    into our financial institutions upfront.
        Chairman Whitehouse. I'm not getting into Canada
    specifically. I'm looking between what you project potentially
    happening with the climate crisis. What's the scale comparison,
    in your mind, between what we experienced with the 2008
    financial crisis and what climate portends for our systems?
        Dr. Carney. Okay, so I'll just lead from that point. The
    first point is what we want to avoid is a rapid and sudden
    adjustment to the climate crisis, both adaptation, the impact
    of fiscal damage or belated investments to address the issue.
    The orders of magnitude are potentially similar in those cases
    if we delay adjustment.
        If we adjust upfront, actually, I'm of the view that we can
    actually grow economies through the investments which would
    improve competitiveness. But if we delay it until it's evident,
    and this is the tragedy of the horizon supremely evident to
    everybody, then the orders of magnitude approaches the
    financial crisis.
        Chairman Whitehouse. And just to be clear, your testimony
    is that climate change could reduce the level of global GDP per
    capita by 10 to 20 percent and in that calculation you leave
    out critical economic channels that have not been modeled,
    including disrupted supply chains, challenges to monetary and
    financial stability that increasing climate change will
    present, and potential economic impact of rising risks to
    national security; is that a fair summary?
        Dr. Carney. That is a fair summary. And one of the lessons
    of large shocks is they get amplified as they come through the
    financial sector. Yes.
        Chairman Whitehouse. Dr. Litterman, the papers we have in
    front of us are littered with the ``systemic risk.'' It seems
    like a mild little term. Could you give us a sense of what its
    impact is?
        Dr. Litterman. The system risk that's incorporated in
    climate change comes from the uncertainty about how the economy
    is going to be responding to the various different hazards that
    are increasing. So, we have whole areas of the country that may
    be impacted by extreme weather, Florida, for instance, that
    could lead to significant financial stress in terms of the
    ability to raise funds for capital. So, you can have
    significant systemic impacts on the economy. It's ones of those
    things we just don't know.
        Chairman Whitehouse. You said cascade through the economy.
        Dr. Litterman. Excuse me?
        Chairman Whitehouse. Systemic meaning it cascades through
    the economy and the sectors.
        Dr. Litterman. Exactly. It will affect every aspect of the
    economy, including government budgets.
        Chairman Whitehouse. And last question, you said you were
    hard-headed about your report. Explain?
        Dr. Litterman. Yes, this is a report that was created by a
    bunch of scientists, academics, business people, investor, and
    we came to unanimous agreement. It wasn't about, I don't know,
    gut feeling. It was about facts. And the problem is we don't
    know what the future is going to bring, so we have to be
    prepared. It's very simple.
        Chairman Whitehouse. Good word to end on. I think my clock
    started a little bit late, so if the Ranking Member would like
    to go a little bit beyond that would be--all's fair. And I turn
    to Senator Grassley, Senator Padilla next, Senator Romney next,
    unless Senator Marshall returns.
        Senator Grassley. Dr. Holtz-Eakin, our rising deficits are
    cast by a lot of people as long-term challenge, ``long-term
    challenge.'' Something we will have to deal with in the future,
    but not immediate problem today. Is that really the case or are
    we already living with the consequences of reckless spending
    and borrowing?
        Dr. Holtz-Eakin. Well, I certainly believe the impacts are
    immediate and shouldn't be put off. Most people characterize
    the threat as something that looks like, you know, a Greece,
    Portugal sovereign meltdown that would happen somewhere in the
    future if we just did nothing, but the reality is that the
    mechanism I described in my opening remarks, the diminished
    productivity, the headwinds to raising the standard of living
    are going on in small amounts every single year.
        It might be too tiny to notice in the moment, but
    cumulatively there are an enormous impact on our progress and
    so I think it's something that needs to be rectified
    immediately, both in and of itself, but also because it would
    allow the Congress more flexibility in pursuing other policy
    objectives.
        Senator Grassley. Also to you, in last week's State of the
    Union address, the President once again tried to portray
    himself as deficit reducer. He pointed to last year's $1.4
    trillion deficit, which was lower than the 2002 deficits due to
    cessation by bipartisan pandemic relief. So, to you how would
    you rate the President's budgetary performance so far?
        Dr. Holtz-Eakin. I think the Administration has done
    nothing to improve the budgetary outlook. Certainly, if you
    look back at 2021, the American Rescue Plan was an enormous
    policy error. Something I said at the time, so it's not 20/20
    hindsight. It was a two trillion dollar stimulus in an economy
    that was growing at 6 percent. I was too big, was unnecessary,
    was poorly designed, lead to a lot of inflation, and this has
    been followed by several proposals called Build Back Better,
    but did not add up in any meaningful way and would have added
    to the core structural deficit in the United States.
        He's taken administrative actions for hundreds of billions
    of dollars in student loan relief that are difficult for me to
    defend, so I don't see any activities being taken by the
    Administration that are recognizing the problems that federal
    budget faces and we need some leadership on that front.
        Senator Grassley. Dr. Carney, in last week's State of the
    Union address, President Biden admitted that the U.S. will need
    oil and gas ``for a while.'' Your firm, Brookfield Asset
    Management, has invested in oil and gas infrastructure around
    the world. Do you believe that the U.S. Government should
    mandate private institutions divest from their fossil fuel
    interests, and if so, what immediate impact would this have on
    the average American?
        Dr. Carney. The first thing, I agree with the President and
    the timeline in continued need for fossil fuel. Secondly, I'll
    just note Brookfield is one of the largest investors in
    renewables and operators of renewables in the world. Thirdly,
    no, I don't believe and I've never advocated mandatory
    divestment of fossil fuels assets. In fact, to address the
    climate challenge what is necessary to get capital financing to
    where the emissions are and ensure that businesses can invest
    to get those emissions down and that's been a consistent
    position I've had for more than a decade.
        Senator Grassley. Yes. I don't have a question, but you
    said--even though I have 1 and 12 seconds left, I'd like to
    just make a statement, but it's kind of a question for
    information from Dr. Litterman and Dr. Carney and it deals with
    the ESG movements within finance, within banking. And I know
    you don't have to invest where you don't want to invest, but as
    a family farmer in Iowa and my son, Robin, runs the family
    farm, but we're corn/soybean farmers.
        So, let's just assume that the FDIC or some other regulator
    or bank say to the community bank in Parkersburg, Iowa that
    you've got to make sure that you know what the carbon footprint
    is of the farmer and in 60 years of arming I don't know where
    to start to answer that question. And then I think--so what is
    obligation that banker is under an obligation to get that
    information from me, but if the farmer can't give the
    information how does it get out? So this is what I'm thinking
    as a historic farming. When I started farming in 1960, we'd
    make 10 trips across the field and produce maybe 60 bushel of
    corn to the acre.
        Today with minimum tillage or no tillage, we make about
    three or four trips across and we produce--in Iowa, I think the
    average farmer produced 204 bushels of corn to acre. So, you
    can see that farmers are already producing unit of food with a
    lot less units of energy than they used to and do we get any
    credit for that? I mean we've already been helping the global
    warming issue with more efficient farming and all that. But
    that banker in Parkersburg can say to Chuck Grassley you tell
    us what your carbon footprint is.
        Dr. Litterman. Senator, it's not an issue of reporting what
    your carbon footprint is. We don't have to be aware of what the
    carbon flux out of the atmosphere into the ground is and
    there's tremendous opportunity for farmers to actually address
    this problem, to sequester carbon into their soil so they can
    change the way they farm. But we do have to address the
    problem. We have to measure the carbon. We have to understand
    the science. There's a tremendous opportunity in farming, in
    ranching, and in timberlands to address this problem and I hope
    we do.
        Senator Grassley. Well, what'd you think we been doing? We
    have been using midland tillage for 25 years, no till for
    probably about that long.
        Dr. Litterman. Well, sadly, the farmers have not been
    compensated for the things that they have done to sequester
    carbon into the soil. They are compensated for being more
    efficient, but we haven't recognized carbon. Carbon movement
    into and out of the atmosphere is something that we need to be
    aware of. We need to measure it and we need to create
    incentives. We all understand this. We need to creative
    incentives to reduce emissions. Let's just do it.
        Chairman Whitehouse. The Growing Climate Solutions Act is
    an example to help farmers do that, which passed with big
    bipartisan numbers. Senator Padilla, and then I had the order
    wrong. Next is Senator Marshall.

                      STATEMENT OF SENATOR PADILLA

        Senator Padilla. Thank you, Mr. Chairman. Communities of
    Color, Indigenous Communities, Low-Income Communities, and
    Immigrant Communities are more likely to be located in climate-
    risk prone areas and areas with degraded infrastructure, making
    them even more vulnerable to the impacts of climate change.
        It was one of the many reasons I was proud to support the
    Inflation Reduction Act and the bipartisan infrastructure law
    last Congress which are making critical investments to combat
    the climate crisis. And notably, these laws direct resources
    towards many of the underserved and frontline communities that
    I just referenced, which far too often bear the brunt of the
    crisis and other natural disasters.
        First question is for Dr. Carney. Can you talk about how
    the climate crisis disproportionately impacts these already
    marginalized communities and the importance of equity in our
    financial response and investments?
        Dr. Carney. Thank you, Senator, for the question. Yes, it
    is an unfortunate reality that climate change has these
    impacts, in part, through--well, through the direct areas in
    which many disadvantaged communities live, proximity, for
    example, to our coasts and of course this Committee will know
    that 40 percent of Americans are living within \1/8\ of a mile
    of coasts and coasts which potentially are subject to, on some
    estimates, half a trillion of property damage over the balance
    of this century.
        Secondly, to the extent to which more extreme weather
    conditions leads to great volatility in food prices, energy
    costs, that will also be a direct impact to these disadvantaged
    groups. And then, thirdly, one of the issues that we all are
    going to be facing around the world, but certainly in America
    as well, businesses and families feasibility to get insurance
    coverage. As these impacts become more prominent, the ability
    to afford it, if it is available, and of course, so for
    families, and I'll finish with this, that are already
    vulnerable to not have the protection the insurance industry
    can provide because of just the risk, the greater risks that
    have become central scenarios, if you will, that adds to the
    vulnerability.
        Senator Padilla. Thank you, Dr. Carney. Appreciate you
    raising the issue of insurance coverage. We're working with the
    White House on an initiative in that regard, so I look forward
    to following up with you. But on the same broad theme, for far
    too long it's the disadvantaged communities that I'm talking
    about that have also been underserved or face barriers when it
    comes to accessing financial services.
        Unfortunately, as Dr. Litterman wrote in his testimony,
    certain sectors of our economy are more susceptible to the sub-
    systemic risks of climate change. This includes community and
    regional financial institutions, given they typically serve
    geographically concentrated areas and can suffer potentially
    significant losses due to natural disasters and extreme weather
    events.
        So, given that these institutions serve a vital function in
    providing financial access to low-income individuals and
    marginalized communities, the risk is even more concerning. Dr.
    Litterman, can you discuss the risk of these climate-fueled
    sub-systemic shocks to local and regional economies and
    describe how they could disproportionally impact these
    communities?
        Dr. Litterman. Sure. Well, wealthy communities will be able
    to build their infrastructure, harden their infrastructure and
    be prepared. I live in California and we see smoke more often
    now. Well, if I put a HEPA filter in and I can filter my air
    I'm better off, but not everyone can afford that.
        People who can't afford to address some of these risks that
    are coming, whether it's drought, smoke, heatwaves, and so on,
    if they can't air condition their homes, they're going to be
    suffering. And we see that around the world when exposed people
    are impacted by these hazards it's the poor that suffer the
    most. So, it's absolutely just one more example of where we
    have inequity and we're not paying attention to it.
        Senator Padilla. Thank you very much. Thank you, Mr. Chair.
        Chairman Whitehouse. Senator Marshall, followed by Senator
    Van Hollen, and then Senator Romney.

                     STATEMENT OF SENATOR MARSHALL

        Senator Marshall. Well, thank you, Mr. Chairman. And I'm
    honored to be here on the Budget Committee with you. I just
    want to commit to you and my friends across the aisle is that
    I'm as committed as anybody is to leaving this world cleaner,
    healthier, and safer than we found it. That as a fifth-
    generation farm kid that means that my family has been
    stewarding the land for five generations. That the soil at our
    farm is in better shape today than it was five generations ago.
        But we've done things like no-till farming like Senator
    Grassley mentioned since 1991. That we planted 20,000 trees.
    That we have fenced off creeks, we call them creeks in Rhode
    Island, Chairman, but whatever it is, creeks back home that
    flow into wildlife refuges. We've created wetland habitat.
        Precision agriculture is exploding in Kansas, that we're
    growing more with less, that we're reusing water, that we're
    taking the fat from the packing plants and turning into
    renewable diesel. My point is that American innovation is
    working and that's why the carbon footprint of American is 14
    percent less today than it was a decade ago.
        So, my first question is for Dr. Holtz-Eakin. And I want to
    say thank you for your Daily Dish newsletter, which I still
    read daily and appreciate your thoughts on the economy. You
    kind of mentioned this in your testimony. As we try to solve
    the problem here, which we all believe that the environment is
    a challenge for us right now, do you think that American
    innovation will have a bigger impact going forward or do you
    think that a federal government heavy hand approach will have
    better results. And my question is, is the cure worse than the
    disease that the federal government keeps prescribing all these
    expensive propositions, is the cure worse than the disease?
        Dr. Holtz-Eakin. Thank you for the questions and the
    compliments. I'm not sure that the latter is deserved, but
    thank you.
        There's a real issue in having the climate strategy and the
    economic growth strategy work hand-in-hand. And one of the
    points I tried to make in my opening remarks is that at the
    moment the federal budget is an enormous headwind to economic
    growth and if we have a climate strategy that exacerbates the
    budget problems it is going to make even worse the challenges
    on raising the standard of living for future generations. And
    so, I worry a lot about that.
        I also worry about the fact that we are not guaranteed to
    get anything out of something like the Inflation Reduction Act
    because it has no sort of global coordination and this is
    ultimately a global problem. And so, when I think about
    climate, I come to the conclusion that the global challenge
    will not be solved without great U.S. leadership. I simply do
    not believe it is possible for the U.S. to be a laggard in this
    regard and have there be any real progress.
        It will not be the case that we can make great progress and
    then provide that leadership if we are crippled by the budget
    outlook that we have. And if we don't undertake a strategy that
    features innovation--and I have for a long time been an
    advocate of using carbon pricing, carbon taxes, in particular.
    Well-designed carbon taxes are huge incentives for
    efficiencies, innovation that are completely decentralized.
        On the ground people decide how they want to respond to
    price incentives. That's what made the U.S. economy the single
    greatest economy in the history of the world, using the same
    techniques to address this problem would be exactly the right
    way to go. And so, I think the strategy that the Administration
    has adopted is not the best strategy. I think it will yield
    little, quite frankly, in time and benefits.
        Senator Marshall. Thank you. My next question is for Dr.
    Carney. Two questions, Dr. Carney, as you make your assessment
    of climate, you talk a lot about carbon footprints. How do you
    assess the cradle to grave impacts of what you're looking at?
    How do you calculate the cost of implementing your policies?
    And I'm going to give you a ``for instance.''
        So, like Iowa, Kansas, over 50 percent of our electricity
    is generated from wind. Unfortunately, wind energy is seven
    times more per kilowatt to produce than from natural gas. Solar
    is probably 70 times per kilowatt more than from natural gas.
    And then when we transport that electricity, transporting
    electricity is 10 times more expensive than transporting
    natural gas. So, we're exporting a lot of that wind generator
    electricity and the cost of generating it and transporting is--
    you know, do the math, 70, 100 times more expensive.
        So, my question, going back to you, Dr. Carney, is how do
    you address the entire cradle to grave impact of your policies,
    not just the carbon footprint and how do you calculate the cost
    of implementing your plans?
        Dr. Carney. Thank you. Chair just cut me off when I used up
    too much time. Very quickly, I might refrain cradle to grave,
    Senator, as well wheeled. So, the all-in cost of delivered
    energy. I would point out that the levelized cost of wind and
    solar, new wind and solar is now comparable, if not through, in
    many jurisdictions. It is less expensive than natural gas is
    the first point.
        The second point, and of course, subject to fewer price
    fluctuations in local and world markets. And then a quick
    point, if I may, just to pick up on the fiscal point, I'll just
    read into the record that one of the most effective mechanisms,
    and the Chair referenced this at the start, is credible climate
    policy that would include regulation. And when you combine that
    with the financial sector and businesses having the right
    information, you get the investment in technologies that are
    efficient today, cost effective, and in the types of
    innovations that will be necessary tomorrow. And I'll just
    refer to a detailed analysis that Secretary Yellen and I did
    prior to her----
        Senator Marshall. Well, we'll have to agree to disagree on
    your cost analysis of wind and solar power. I wish. I could
    only wish that they were efficient. Thank you so much. I yield
    back.
        Dr. Carney. One of the largest investors in energy, so
    that's what we based it off.
        Chairman Whitehouse. Senator Van Hollen.

                    STATEMENT OF SENATOR VAN HOLLEN

        Senator Van Hollen. Thank you, Mr. Chairman. Thank all of
    you for your testimony today.
        Dr. Holtz-Eakin, I agree with your comments on carbon
    pricing. Many of us pushed for that for many years with
    appropriate safeguards like border adjustments to protect U.S.
    domestic industry. This is not a puritan statement. It's a
    statement of fact. We weren't able to get any support here in
    Congress from the other side of the aisle on that and that's
    why I strongly support the approach that we took in the
    Inflation Reduction Act because we have to do something and I
    think if you look at it we will achieve significant reductions
    in greenhouse gas emissions, not as much as I would like, and
    that brings me to a couple of points.
        Number one, first of all, I think there are huge economic
    opportunities and job opportunities in going forward with the
    clean energy transition. In my state of Maryland, we have two
    offshore wind facilities that are being built, 10,000 good
    paying jobs projected from those two facilities.
        We also know that the cost of doing nothing is huge and
    that's part of the purpose of this, today's hearing. And those
    costs are being borne as we speak in terms of taxpayer dollars
    for more climate resilience at the local level, at the state
    level, at the federal level and the cost that insurers or
    individual citizens are paying through insurance and through
    non-insurance and just the impact on them and their property
    and their lives.
        Mr. Litterman, you testified, and I'm quoting here that
    ``insurance markets are critical to diversify these risks and
    to create appropriate incentives for individuals, companies,
    and communities to prepare for extreme weather by building
    harden infrastructure in buildings.'' You go onto say ``but the
    insurance markets are not working properly because historical
    loss experience is no longer relevant for predicting future
    losses.''
        I noted that in Florida and Louisiana and California, at
    least one of those three states if not all of them you're
    seeing just last year a number of insurance companies go
    insolvent because they just couldn't pay the bill for extreme
    weather events. Can you expand on the comment you made about us
    being unprepared when it comes to insurance to capture this
    risk.
        Dr. Litterman. Sure. Insurance companies base their pricing
    on historical experience. That historical experience is no
    longer relevant. We are in a new weather environment now and so
    we see these tail events happening much more frequently than
    they have historically. We have to base insurance on what's
    actually going to happen or insurance companies are going to
    pull back. Look at California and wildfires. The probability of
    getting wildfires is now much higher than it was historically.
    Everyone knows that, including insurance companies. And so, if
    you want to buy insurance, insurance companies they're going to
    raise the premium, but the insurance regulators won't allow
    them to raise the premium because based on what they say. Show
    me the data. Well, the data is changing every day. These things
    are becoming more and more likely and so the insurance markets
    are not working. Reinsurers understand this. They see the risks
    and they say we won't underwrite these losses because we see
    them coming and so these markets are just not working.
        And then you get Florida, the federal government says we'll
    provide the flood insurance. California says taxpayers will
    underwrite the costs of fire insurance. This leads to incorrect
    incentives. What people should be doing is recognizing that we
    need hardened infrastructure. We shouldn't be living in risky
    places and we certainly don't want the federal government to be
    subsidizing people to live in areas where it's more expensive.
    That's just going to increase the total cost in the long run.
        So, we have to face the reality. I love what Professor
    Holtz-Eakin said. We need to put a price on it. We need to
    create incentives. People respond to incentives. That's all
    there is to it. And so, we get the right incentives, we'll get
    the right behaviors. If we have the wrong incentives, and the
    insurance industry right now we have the wrong incentives, and
    so we get the wrong behavior.
        Senator Van Hollen. Can you speak a little more to the
    secondary market of insurers? Because as you said they get it,
    right? Costs are going up as I look at these facts in Florida
    after six insurance companies went insolvent in 2022 alone, you
    now see premiums averaging more than $4,200 per year, almost
    three times the national average.
        So, as you say, at the end of the day, you're going to pick
    up the tab, right? I mean you're gong to pick up the tab,
    either the taxpayer or you're going to have to pick up the tab
    through much higher home insurance rates and other insurance
    rates, which is why obviously the best course of action is to
    try to address the issue at its root and reduce the impact to
    climate change. But obviously, we're in this already so we have
    to provide the resilience.
        I can tell you in my state of Maryland, just over the last
    four years if you look at it, in the last few years we've seen
    a dramatic increase in extreme weather events, costing the
    State of Maryland billions and billions of dollars. So, we're
    going to pay one way or another if we don't figure out how to
    address this. And as I said, there's huge opportunities,
    economically and job-wise in addressing them. Thank you, Mr.
    Chairman.
        Chairman Whitehouse. Thank you Senator Van Hollen. Do you
    care to respond?
        Dr. Litterman. I would just say that we can do better.
        There are models that we can run. We can get better
    estimates of what the risks are, whether it's flooding or heat
    or smoke and so on, and we should. So, basically what the
    insurance market is going to have to do is start relying on
    climate models to project into the future what these risks are.
        Chairman Whitehouse. Senator Romney. Thank you for your
    patience.
        Senator Romney. Pardon?
        Chairman Whitehouse. Thank you for your patience.

                      STATEMENT OF SENATOR ROMNEY

        Senator Romney. Thank you, Mr. Chairman. I have no question
    about the impact of climate change. It's going to be
    significant, devastating in some areas more than others. The
    question is whether we're doing things that will actually make
    a difference and will lead to a different result.
        What I'm concerned about is that most of what we do here in
    the United States is--well, I'll call it virtual signaling.
    That term has been used recently. But we do a lot of things
    that make us feel good about ourselves, but will have almost
    impact on global emissions. If we want to do something serious
    about global emissions, we need to put a price on carbon.
        And our Democrat friends had the chance to do that during
    reconciliation. They didn't. And so, we can talk about all
    these other things we're doing and getting more batteries for
    cars and so forth, but the reason these things don't make a big
    difference is because the U.S. is not the big contributor to
    emissions in the world. China is and Brazil and India and
    Indonesia and all of the growth is going to come from them.
        China's emissions are greater than the U.S., the EU, and
    Japan combined. So, when we do things here that are very
    expensive and disruptive to our economy, they don't change
    what's happening globally. We have to do things that have
    global impacts. So, research and technology and a price on
    carbon are the things that would make a difference.
        So, it's frustrating to talk about this as a huge challenge
    to our budget and to our economy when it's out of control,
    unless we deal with them the way I've just described. And yet,
    there is something that is in our control that both parties are
    saying we won't touch that. And what is in our control is the
    level of debt we have. I just heard Professor Holtz-Eakin just
    indicate that the impact on the economy of the amount of debt
    we're adding up is 10 times the impact of climate change, 10
    times. And yet, we're not willing to look at our entitlement
    programs to see if we can balance them somehow.
        I'm not talking about cutting them or taxing them. I just
    saying let's at least come together and work on it. But the
    parties are afraid to even come together and have a discussion
    about how could we balance these things. It strikes me as one
    of the most outrageous things my generation has done to the
    coming generations is to say we're going to spend on this money
    on ourselves. We're not going to tax ourselves to compensate
    for all that we're giving to ourselves. We're going to take all
    this money and then we're going to pass onto you for all of
    your lives slower growth so a more challenged economy and
    higher interest payments. It's unbelievable. It's almost
    immoral.
        So, I look at this challenge, Professor Holtz-Eakin, am I
    reading this right that the challenge of the debt and our
    unwillingness to balance what we spend with what we tax that
    that unwillingness is having a huge impact on economic growth
    over the future and on the lives of our grandchildren and
    theirs?
        Dr. Holtz-Eakin. I think it's well said. I'd just amended
    it in two ways. I would take out almost in front of immoral and
    I would say that it's a disservice to the beneficiaries in
    Social Security and Medicare to pretend that somehow they can
    survive in their current form. They cannot. Trust funds will
    exhaust in under a decade, Social Security trust fund in a
    decade.
        It is an enormous irony that something like the Social
    Security program, which was meant to eliminate income
    uncertainty in retirement and in old age is now the greatest
    source of income uncertainty in retirement and old age because
    we have no idea what that program will look like as the years
    roll forward.
        So, I personally I'm enormously disappointed at a public
    debate that suggest we can't touch Social Security and
    Medicaid. They are the only things we should touch. They are
    the most important things to touch and I would encourage this
    Committee to put that on their list.
        Senator Romney. Thank you. Dr. Litterman, I described what
    I thought were the major levers that would have an impact on
    emissions and climate and that came from a model that was
    presented by a professor at MIT. They built this huge model
    there that shows all the things you could do and the impact
    they have. What was shocking was almost everything we talk
    about or we are excited about has no real impact globally,
    except a price on carbon and of course investments in new
    technology and innovation.
        Some of that is on the table, but the price on carbon never
    have; am I wrong on that or is that a fair assessment?
        Dr. Litterman. No, you're absolutely right. In fact, I
    would go further because when we talk about the budget deficit,
    as Professor Holtz-Eakin knows, a carbon tax is a great way to
    raise revenues. Polluters pay and that reduces the deficit, so
    of course that's the right way to do it.
        And another thing I would say is that you're absolutely
    right about the global perspective. This is not a U.S. problem.
    This is a global problem and the U.S. has to join the global
    community in creating harmonized incentives to reduce emissions
    globally. And right now those incentives vary across the board.
    The U.S. is kind of in the middle with very little incentives,
    but you know what our strongest incentive to reduce emissions
    comes from a gasoline tax. If I drive an electric vehicle, I
    don't pay it, but that's not a strong incentive, okay?
        In Europe, the incentives to reduce emissions are over a
    hundred dollars a ton. In many Middle East countries, Russia,
    Venezuela, there are strong subsidies to increase pollution
    because they have fixed prices on fossil fuels, which are below
    the market. So, we've got to move diplomatically, and I would
    say what we have to do in the U.S. is provide our State
    Department with the tools that they can go and negotiate
    globally to get these harmonized incentives to reduce
    emissions.
        Senator Romney. Thank you. Mr. Chairman.
        Chairman Whitehouse. Thanks Senator Romney. Senator Kaine.

                       STATEMENT OF SENATOR KAINE

        Senator Kaine. Thank you, Mr. Chairman and thanks for
    kicking off our 118th Congress meetings of the Budget Committee
    with this important topic and thank you to the witnesses.
        So, I represent Virginia and it's a coastal state. Our
    shoreline stretches more than 5,000 miles if you include all
    the snaking waterways around the Chesapeake Bay and the
    Atlantic. And it's home to assets like the world's largest Navy
    base, one of the largest cargo ports in the United States,
    tourism destinations like Virginia Beach and historic
    Jamestown, as well as commercial and residential districts, the
    second largest metropolitan area in Virginia is the Hampton
    Road area. It's about 1.7 million people.
        Hampton Roads is listed behind New Orleans as the most
    vulnerable community in the country to sea level rise and this
    is not the only part of Virginia that's affected by climate
    change. We see intense rainstorms and flooding in the
    Appalachian region of Virginia that cause much more severe
    damage than they have in the past. Even though the annual
    rainfall hasn't changed much, it tends to come in much more
    violent episodes than it has in the past because of climate
    change, so obviously very interested in this topic.
        One of the things that I've been troubled by, and I want to
    pick up a little bit, Senator Romney was talking about debt and
    spending and wanting to spend the right way, not the wrong way.
    One of the things I've been troubled by 10 years here in the
    Senate is it seems like we are willing to spend a lot of money
    on climate change, but only in this sense, we spend in response
    to emergencies.
        So, we'll do a superstorm Sandy emergency relief package in
    the aftermath of some significant climate event and you can
    pretty much count on bipartisanship. We'll try to find ways to
    help our communities out when they've been hurt or we'll
    rewrite the Federal Flood Insurance Program to provide more and
    more financial support for those whose residences and
    businesses are getting more severe flood damage than they have
    in the past.
        So, we'll come to respond on the backend, but what has been
    harder to do is find smart resilience funding or even, more
    importantly, smart prevention funding. I do think, as Senator
    Romney said, we are on the prevention side, some of the
    research investments either in the Chips and Research bill and
    in the Infrastructure bill or maybe frontloading some of these
    expenses in the prevention side.
        But if either of you would just have thoughts about in
    spending and investing how should we be balancing between
    prevention, resilience, and response and is there a way we
    should adjust that dial to make it more likely effective?
        Dr. Litterman. Well, I think the most important thing we
    can do is create the incentive now to prevent this problem from
    getting bigger and bigger into the future, so that's what we
    have to do immediately. The costs themselves are primarily in
    the future and so, among other things, we have to be prepared.
        I think in terms of what we really need to do to address
    this problem, as one of the senators mentioned, we have to
    create the innovation to create the new types of energy--the
    energy, the infrastructure, the housing, and so on that will be
    resilient to the future that's coming. And in order to do that,
    in order to generate the innovation and the capital and so on,
    what we need is to create the expectation among investors that
    there will be incentives that will pay--you know, if you have a
    low carbon approach that it'll be more profitable.
        Senator Kaine. Can I just say what about innovation and
    then I did want to have the Professor respond as well. One the
    things I like as sort of a little virtuous competition in the
    innovation space. I know some of what we did in the IRA has
    made European nations kind of mad, like what you're trying to
    do things that will make it harder for industries. But then
    they've decided, well, maybe we'd better up or investments as
    well and that kind of virtuous competition it can lead to some
    tough words between otherwise allied nations, but it may not be
    bad in terms of the overall goal. Dr. Holtz-Eakin, I know you
    wanted to say something.
        Dr. Holtz-Eakin. Just briefly, I mean if you take the flood
    insurance program as an example, for long periods we didn't
    update the web maps and delivery didn't update the flood maps,
    so that's a terrible idea. You have to know the risks you face
    and then once you have those risks they have to be priced
    effectively. And that means in some cases premiums that are
    much higher than have been historically. That becomes
    uncomfortable. Let's be honest about that. But it provides
    exactly the right innovation and other incentives.
        Don't build a house where it doesn't belong, right, then,
    you will not have to pay out of the flood program when it gets
    hit. New businesses to places are more secure for the future.
    All of that is the best kind of signal to send and it comes
    from really doing mundane structural things in a lot of federal
    programs, but we're not doing that.
        Senator Kaine. Thank you, Mr. Chair.
        Chairman Whitehouse. Thank you very much, Senator Kaine.
    Senator Graham, followed by Senator Kennedy and then Senator
    Braun, unless we have Democrats that are mediating. Go ahead,
    Senator Graham.

                      STATEMENT OF SENATOR GRAHAM

        Senator Graham. Thanks, Mr. Chairman. This is a hearing
    worth having, for sure. So, we all sort of agree on the
    problem. Climate change is real. It's affecting quality life on
    the planet over time. We all agree with that. What to do about
    it is problematic, but let's talk about pricing carbon. Your
    price on carbon what would that translate to, Doug, in terms of
    increasing gas prices?
        Dr. Holtz-Eakin. I don't have a specific price for carbon
    that I would translate into gas prices, but the literature says
    very clearly that the right way to do this is to have----
        Senator Graham. No, I got it. I got it.
        Dr. Holtz-Eakin. Let me finish. Let me finish. It's a
    revenue neutral carbon tax so that you use the revenues to get
    rid of other taxes that people who make gasoline will have to
    pay. So, the net impact on the pump prices is not always from
    that. Again, something is going down, not just up.
        Senator Graham. So, revenue neutral gas tax. You take the
    money you collect from gas taxes and you offset obligations in
    other areas, right?
        Dr. Holtz-Eakin. Revenue neutral carbon tax economy-wide so
    that you can use the revenues to diminish taxes on capital and
    labor. Those are corporate income taxes, income taxes, payroll
    taxes.
        Senator Graham. Now, I'm making $20 an hour in South
    Carolina. How do I get my money back for an increase gas tax?
        Dr. Holtz-Eakin. Payroll tax reduction.
        Senator Graham. Okay. And how does that affect Social
    Security?
        Dr. Holtz-Eakin. Sadly, in reality, it doesn't affect
    Social Security very much because it's already not going to
    have enough money, so you better figure that out.
        Senator Graham. Okay. What would you do?
        Dr. Holtz-Eakin. Well, Senator, I really like Senator
    Wyden's plan that didn't get into the Build Back Better, but he
    suggested that we have a low carbon tax to begin with, exclude
    gasoline, and then allow the incentive to rise quickly and so,
    there are various ways to address this. I would say that the
    gasoline is very inelastic and so you really don't impact very
    much the amount of pollution by putting on a gasoline tax. I
    think there's much better ways to address it.
        Senator Graham. How would it affect utility bills, this
    approach?
        Dr. Holtz-Eakin. How would----
        Senator Graham. Yes. I mean somebody's got to pay. Carbon's
    generated through transportation and production of energy
    itself.
        Dr. Holtz-Eakin. Well, Senator, I'm not an expert on
    utility, but I believe that utilities around the country have
    very different carbon footprints. So, in an area where you have
    clean electricity it wouldn't be much of an impact.
        Senator Graham. I'm generally supportive, but the problem
    with this is we talk in circles. I'm asking you if we go down
    this road how much will your utility bill go up, how much gas
    prices will go up, we need to actually talk more honestly about
    that. How about something maybe we can agree on, that if we
    don't get China and India and other big emitters to do better
    it doesn't really matter a whole lot what we do here; do you
    agree with that, Doug?
        Dr. Holtz-Eakin. I do agree with that.
        Senator Graham. Does everybody on the panel agree with
    that? Is one way to do that a border adjusted carbon fee?
        Dr. Holtz-Eakin. Certainly, if we had a global regime with
    people already doing something, right, then we should have a
    border adjustment.
        Senator Graham. Mr. Litterman.
        Dr. Litterman. Absolutely. Absolutely. I think it's a great
    way to go and I think it's something that both parties can
    agree on, so let's move forward.
        Senator Graham. So, if you're looking to make big polluters
    like China and India to change their behavior, we do all the
    things here at home may drive up prices. When they send
    products into the country, they're going to pay a pollution
    fee, for lack of a better term. You agree with that?
        Dr. Litterman. Oh, yeah, absolutely. We need to measure the
    incentives globally to reduce the emissions, we need to
    harmonize them, and we need to get them to the appropriate
    level, so let's work together to do that.
        Senator Graham. If we do electrification of the vehicle
    fleet along the lines that car companies are talking about by
    2035, 2040, how much demand in power production will that
    create in America?
        Dr. Litterman. I don't know, Senator.
        Senator Graham. Do you know, Doug?
        Dr. Holtz-Eakin. I don't know the number off the top of my
    head. I'd be happy to get it to you. But in my written
    testimony----
        Senator Graham. Like a lot.
        Dr. Holtz-Eakin. But in my written testimony.
        Senator Graham. It's like a lot.
        Dr. Holtz-Eakin. It's like a lot.
        Senator Graham. It's like a lot. Where does that ``a lot''
    come from? Can you do it without natural gas?
        Dr. Holtz-Eakin. I don't think so.
        Senator Graham. Can you do it without natural gas, Mr.
    Litterman?
        Dr. Litterman. Oh, yeah, absolutely.
        Senator Graham. Okay.
        Dr. Litterman. What you need to do is you need to create
    the right incentives and let the market work.
        Senator Graham. Time out. How much increase in demand for
    power or power will come from electrifying the vehicle fleet?
    How much, 100 percent, 50 percent, 10 percent, 200 percent? Do
    you have a clue?
        Dr. Litterman. How much of the electricity demand will be
    increased by electrifying----
        Senator Graham. To cars or plugging into something.
        Dr. Litterman. Yes, I don't know.
        Senator Graham. How can you say if you don't know there's
    no need for gas? This is the problem. Thanks.
        Dr. Litterman. Who said there was no need for gas, Senator?
        Chairman Whitehouse. Senator Kennedy is up next, followed
    by Senator Braun. And for the record, for people who came late,
    we actually have a third witness, who happens to not be visible
    because he's with us electronically, but it's Mark Carney, who
    was the former Chief of the Bank of Canada and the Bank of
    England.

                      STATEMENT OF SENATOR KENNEDY

        Senator Kennedy. Thank you, Mr. Chairman. Dr. Litterman,
    how long have you been studying climate change and possible
    solutions?
        Dr. Litterman. Studying? Well, I was the head of Risk
    Management at Goldman Sachs. I didn't worry too much about
    climate change at that.
        Senator Kennedy. Tell me the number of years, if you would,
    Doc?
        Dr. Litterman. How many years?
        Senator Kennedy. Yes.
        Dr. Litterman. Let's say 15.
        Senator Kennedy. And how about you, Dr. Holtz-Eakin?
        Dr. Holtz-Eakin. About 25.
        Senator Kennedy. Okay. Dr. Litterman, how much will it cost
    to make the United States of America carbon neutral by 2050?
        Dr. Litterman. I don't know, sir.
        Senator Kennedy. So, you're advocating we do these things,
    but you don't know the ultimate cost?
        Dr. Litterman. Yes, absolutely. I certainly don't know the
    ultimate cost and it's very uncertain. It depends on
    innovations. It depends on----
        Senator Kennedy. I understand. I'm just trying to lay a
    foundation here to understand your expert testimony. Dr. Holtz-
    Eakin, do you know how much it will cost to make the United
    States of America carbon neutral by 2050?
        Dr. Holtz-Eakin. Depends how you do it. If we do all on the
    federal budget----
        Senator Kennedy. Public and private dollars.
        Dr. Holtz-Eakin. Sorry?
        Senator Kennedy. Public and private dollars. It's
    ultimately private dollars anyway.
        Dr. Holtz-Eakin. Yes, I agree.
        Senator Kennedy. So, how much?
        Dr. Holtz-Eakin. You're going to look at $50 trillion.
        Senator Kennedy. $50 trillion.
        Dr. Holtz-Eakin. Yes.
        Senator Kennedy. Okay. Thank you. If we make the United
    States of America carbon neutral by 2050 by spending $50
    trillion, what you're advocating I gather? No? Okay, then
    strike that last part. I'm wrong. You're not advocating. You're
    advocating something.
        Dr. Holtz-Eakin. If you're going to do something, do
    something smart. That's what I advocated.
        Senator Kennedy. Okay. If we spend $50 trillion to make the
    United States of America carbon neutral by 2050, how much will
    that lower world temperatures?
        Dr. Holtz-Eakin. I can't speculate what China and India and
    the rest of the world has done.
        Senator Kennedy. Okay. Have you heard anybody from the
    Biden Administration say how much it would lower world
    temperatures?
        Dr. Holtz-Eakin. No.
        Senator Kennedy. Does anybody know how much it would lower
    world temperatures? No?
        Dr. Holtz-Eakin. No one can know for sure.
        Senator Kennedy. Dr. Litterman.
        Dr. Litterman. Yes.
        Senator Kennedy. If we spend $50 trillion or however much
    it takes to make the United States carbon neutral by 2050, how
    much will it lower world temperatures?
        Dr. Litterman. Senator, that depends on the rest of the
    world. We have to work with the rest of the world. We're in
    this together.
        Senator Kennedy. Well, what if----
        Dr. Litterman. We can't build a wall around the United
    States and say----
        Senator Kennedy. What if we spend $50 trillion, Europe
    cooperates, most western democracies cooperate, but India and
    China don't, how much will our $50 trillion lower world
    temperature?
        Dr. Litterman. We're in this together. We have to get the
    world to work together.
        Senator Kennedy. I get that.
        Dr. Litterman. Okay.
        Senator Kennedy. How much would it lower world
    temperatures?
        Dr. Litterman. If China and India do not help?
        Senator Kennedy. Yes.
        Dr. Litterman. I don't know.
        Senator Kennedy. Okay. Dr. Litterman, do you believe, based
    on your observations--you seem to be a very intelligent, well-
    informed man. Based on your observation of Mr. Xi Jinping that
    Mr. Xi Jinping will ever do anything that is inconsistent with
    China's best interests in the name of global climate change?
        Dr. Litterman. I understand that China has a federal carbon
    tax.
        Senator Kennedy. Yes, but face with a policy, okay, where
    China does something that's not in its best interest, but it
    does it because it's in the global best interest, do you think
    President Xi would do that?
        Dr. Litterman. I think that President Xi understands that
    we have to work together to address this global problem. Yes, I
    do, and it will be in the best interest of China to work with
    the United States to address this problem.
        Senator Kennedy. So, you think the answer is yes?
        Dr. Litterman. I think the answer is it's in China's best
    interest to work with the rest of the world to address this
    problem, as it is in the United States best interest to work
    with the rest of the world to address this problem.
        Senator Kennedy. Do you believe----
        Dr. Litterman. We need harmonized incentives to reduce the
    issue.
        Senator Kennedy. Do you believe in the Tooth Fairy?
        Dr. Litterman. No, sir.
        Senator Kennedy. Do you believe in the Easter Bunny?
        Dr. Litterman. No, sir.
        Senator Kennedy. Do you believe that Jimmy Hoffa died of
    natural causes?
        Dr. Litterman. No, sir.
        Senator Kennedy. Okay. Thank you, Mr. Chairman.
        Chairman Whitehouse. Senator Braun.

                       STATEMENT OF SENATOR BRAUN

        Senator Braun. Thank you, Mr. Chairman. I've been four
    years on the Budget Committee each year and the last two years
    prior to this we did 16 hearings and we didn't do one hearing
    on the mechanics of actually doing a budget. This is the Budget
    Committee and we haven't put one together fully budgeted and
    appropriate on time in 25 years.
        I've got four kids that now run my business, three of my
    four kids, and I was on a school board 10 years, state
    legislator for three years. No other place works like that and
    has a business plan that works into the future. I also come to
    the Senate and believe, as Republicans and conservatives, that
    if we don't weigh in on big issues of the day shame on us. Then
    we're going to be at the expense of whatever the other idea is.
        Started the Climate Caucus back six months after I got
    here. Got six other Republicans to join and we've been an
    engaging caucus, a real caucus that's met over time. So, the
    issues are there, but I think until we--unless we want to
    change the name of this Committee to the General Issues of
    Concern Committee, we owe it to the American public that we're
    not going to base it upon doing no budgeting, no appropriating,
    doing it behind closed doors, and dropping 4100 page bills in
    our lap that none of us can read through and then having the
    gall to borrow the money from our kids and our grandkids. That
    is shameful.
        We should be fleshing out the climate issues probably in
    EPW. I've been the loudest senator on the Republic side that
    says we have a broken healthcare system. Fixed it in my own
    business 15 years ago, made it consumer driven, but skin in the
    game from my own employees to be real healthcare consumers, cut
    costs by 50 percent, have not had premium increases in 15
    years. That sounds like it'd be unbelievable, but it's true.
    When you do things that make sense and that are sustainable.
    You know I've got healthier employees for that now.
        So, healthcare, it's breaking the bank in terms of
    mentioned earlier Medicare until you reform the healthcare
    industry and embrace competition, transparency, don't get
    hospitals all the rules and regs they need to become an
    unregulated utility like a monopoly in the sense of how they
    work, probably going to see costs going up.
        So, I'm not going to weigh in on the climate issue, other
    than we've doing it. The experts there, the leaders and
    captains of industry I think are accepting it as an issue. It's
    going to be solved in that area through technology, not here.
    And it does beg the question when China's building a coal-fired
    plant weekly how does that hold thing fit into the equation?
        So, I want to cite a few more statistics and then I'm going
    to ask Mr. Carney, who is out there in the cyber world and Dr.
    Holtz-Eakin, what you think about the trajectory we're on. The
    only budget out there that anybody's had the nerve to be I did
    it last year, privilege motion. We should discharge a budget
    resolution by April 1st. There'll be some of us that do that
    again, but just cutting to what we do do, which is no
    budgeting, no appropriating, and then whether you believe in
    reforming things on a climate basis and healthcare. What about
    the idea that we're adding trillions to our national debt, 18
    trillion when I got here, now 31 trillion. Start back in 2000
    when we put a couple wars on the credit card. That took us from
    5 trillion in debt to 10 trillion.
        Next Administration said, well, we're not going to be
    outdone, added another 6 trillion. I get here it's 18 trillion.
    It's been off the rails ever since. Let's start with Mr.
    Carney. You come from the banking industry. I debated Bernie
    Sanders for 25 minutes on the Senate floor about the modern
    monetary theory. Can we keep borrowing and borrowing without
    having the consequences of crowding out all the issues that are
    going to come into play, is that a viable long-term business
    plan? And I'd like Dr. Holtz-Eakin to weigh in as well.
        Dr. Carney. Thank you, Senator. I'll make a couple quick
    comments. The first is that crowding out is an issue. I think
    Professor Holtz-Eakin has made this point in this forum and
    other fora. And secondly, it is a relevant issue for climate
    change because of the cost of adaptation, resilience, and
    delayed action is going to lead to much greater crowding out
    and bigger economic impacts as well. So, the fiscal situation
    you described, and I won't' comment on obviously on U.S.
    situation, but this underscores the importance of revenue
    neutral use of regulation and effective policies that other
    senators have been referencing.
        Last point I'll make before handing it over to the other
    witness is I would just refer, given the earlier discussion, to
    the carbon tax in Canada, which is revenue neutral, is returned
    to Canadians and insures about 70 percent of Canadian
    households. I'm going to net ahead.
        Senator Braun. What about the modern monetary theory,
    climate aside?
        Dr. Litterman. I don't want to----
        Senator Braun. I figured you may not weigh in on that. Go
    ahead.
        Dr. Litterman. No, that's a theory to which I do not
    subscribe.
        Senator Braun. Well, I can tell you it's a bad theory.
    Anywhere else you borrow from future generations it does not
    work out. Dr. Holtz-Eakin.
        Dr. Holtz-Eakin. Well, one, the federal budget is on an
    unsustainable structure and its getting worse. Two, it is
    imposing costs on the economy today and will increasingly
    impose those costs. The carving out is real. And three, there
    is nothing about modern monetary theory that coincides with the
    real-world experience. It's just incorrect.
        Senator Braun. Yes. And thank you for that. And I think we
    should try to discharge a budget resolution by April 15th, if
    not, I will take one to the floor again because it's our
    responsibility to our kids and grandkids not to run this place
    like we currently run it.
        Chairman Whitehouse. Senator Lee.

                        STATEMENT OF SENATOR LEE

        Senator Lee. Thank you, Mr. Chairman. I want to take a
    brief moment to say that I appreciate the opportunity to serve
    on the Budget Committee as a new member and especially to do so
    at a time when the state of our federal budget is in such
    profound disrepair, perhaps more so than at any other time in
    our nation's history.
        Fifteen years ago, our public debt measured as a percentage
    of the American economy, was at just 35 percent. Today it
    stands at 100 percent and according to fairly rosy projections
    within the next few decades it'll get up to 200 percent. And
    whether it's decades or just a few years away, we will reach a
    point where our interest on the national debt becomes the
    largest line item we have, bigger than Social Security or
    Medicare or Defense.
        This fiscally irresponsible path that our federal budget is
    on is something that increases significantly the odds of a debt
    crisis and the associated economic pain that will inevitably be
    borne by the American public, if and when that crisis arrives
    in its full force.
        Just last year the Congressional Budget Office noted that
    the very tangible consequences of our federal debt needed to be
    kept in mind or the high and rising federal debt that CBO
    projects over the next three decades would have serious
    consequences for the economy and federal budgeting, including
    the crowding out of private investment, higher interest costs,
    and increased risk of a fiscal crisis.
        So, let's not fool ourselves. And most importantly, let's
    not fool those we represent, the American people. Blooming
    deficits and surging debt have been driven by and will continue
    to be driven by runaway profligate spending by the federal
    government, not because of any effects of climate change. That
    is a different thing. That's not what has caused our ballooning
    debt and deficit.
        There has become an all to prevalent quality in American
    political discourse and specifically among many in the United
    States Senate and on the left who seek to climate alarmism to
    justify a widespread federal government takeover of our economy
    and a radical, unrealistic and damaging transition of our
    energy sector with all of its abruptness and all of its
    disregarding of things that have worked and helped elevate
    people out of poverty. And yes, even helped, in many instances,
    clean up the environment.
        Dating back to at least the 1970s, a group of left-wing
    academics and media allies began making apocalyptic claims
    about climate change, stipulating that climate-related
    apocalyptic events would wipe out hundreds of millions if not
    billions of the Earth's human inhabitants over the next few
    decades. What's more concerning than the kooky theories of Paul
    Ehrlich or Thomas Malthus that a growing number of Democratic
    members of Congress, bureaucrats, and private sector business
    people are now making similarly outlandish and inflammatory
    alarmist claims about a looming climate apocalypse or at least
    throw support behind green new deal style legislative proposals
    and regulatory mandates.
        Not only is this supremely misguided and shortsighted, but
    it's not remotely necessary. It certainly isn't desirable. The
    reality is that U.S. energy-related carbon emissions have been
    steadily declining over the last 15 years without any green new
    deal styled takeover of the federal budget and the American
    economy. And the same time China's carbon emissions have nearly
    doubled over that same time period.
        Democrats in Congress and in the Biden Administration need
    to work with Republicans to promote American energy
    independence rather than promoting less efficient forms of
    energy, especially at a time of significant energy inflation.
    And it's been financially debilitating to low- and middle-
    income American households. And those energy costs translate
    also to higher food costs and higher costs for everything we
    buy and everything we do.
        These costs don't fall on the wealthy like they fall on the
    poor and middle class. But brazen regulatory overreach
    currently being carried out by unelected and unaccountable
    bureaucrats must come to an end as those decisions of making
    law are expressly reserved for Congress under Article I,
    Sections 1 and 7 of the U.S. Constitution.
        Lastly, it's my hope that this Committee will spend more of
    its time and effort this Congress deliberating ways to reduce
    our budget deficits so that we can stabilize our debt while
    putting our budget on a pathway to balance. Thank you, Mr.
    Chairman.
        Chairman Whitehouse. Thank you, Senator Lee. To be clear,
    the reason we're having this hearing and the reason that we're
    going to continue to have hearings on this subject is that $10
    trillion of our federal debt can be ascribed to exogenous
    shocks to our economy with which we had to cope. It wasn't
    cheap, but we had to do it.
        The biggest exogenous shock on the horizon out there is
    climate upheaval. That's not just me. That's bankers, corporate
    CEOs, scientists, economists, people who will look at this
    problem all around the world. And it matters because we have
    the chance to head it off now if we take appropriate steps,
    many of which, as we've heard in this hearing, have support on
    both sides of the aisle.
        I'll also add that I mentioned at the beginning of the
    hearing the prospect of healthcare reforms that can lower
    costs. Accountable care organizations were a perfect example of
    that and I look forward to working with members on both sides
    of the aisle and with CBO to drill into the cost bases for that
    and try to figure out we can do to do more of what looks like
    already trillions of dollars in healthcare savings that are
    projected from these changes.
        But I'll close with a round of questioning. I didn't have
    the chance to ask Dr. Holtz-Eakin questions, so I'm going to
    yield myself a second round. And let me ask you, Dr. Holtz-
    Eakin, in preparing your testimony today did you familiarize
    yourself with the Bank of International Settlements so-called
    Green Swan Report, which warns of, and I quote, ``catastrophic
    and irreversible impacts from climate so large that''--and
    quoted them again--``it would make quantifying financial
    damages impossible?''
        Dr. Holtz-Eakin. No, I did not read that report.
        Chairman Whitehouse. Did you familiarize yourself with the
    report put out in April of 2019 by dozens of central banks that
    says, ``Estimates of losses are large and range up to $20
    trillion when looking at the economy more broadly.''
        Dr. Holtz-Eakin. I don't know that report.
        Chairman Whitehouse. Did you familiarize yourself with the
    Deloitte Global Turning Point Report, which concluded that in
    2070 alone global GDP could be 7.6 percent lower compared to a
    baseline that does not account for climate change.
        Dr. Holtz-Eakin. I read that report--scanned that report
    when it first came out.
        Chairman Whitehouse. Did you familiarize yourself with the
    report from economists largely centralized in Cambridge, but
    from around the world that said that the effect on the U.S.
    economy would be more than $3 trillion in losses and GDP could
    shrink by more than 5 percent due to the collapse of stranded
    assets?
        Dr. Holtz-Eakin. I scanned that one as well when it came
    out.
        Chairman Whitehouse. Did you familiarize yourself with the
    report from Freddie Mac, the American mortgage giant that said,
    and I'm quoting here, that the economic losses and social
    disruption related to coastal property losses ``are likely to
    be greater in total than those experienced in the housing
    crisis and the Great Recession.''
        Dr. Holtz-Eakin. No.
        Chairman Whitehouse. I gather you did familiarize yourself
    with the CSTC Report that Litterman wrote. Correct?
        Dr. Holtz-Eakin. When it was released. Yes.
        Chairman Whitehouse. And when it was released, its opening
    sentence was ``Climate change poses a major risk to the
    stability of the U.S. financial system and to its ability to
    sustain the American economy,'' is that correct?
        Dr. Holtz-Eakin. Yes.
        Chairman Whitehouse. And the second paragraph after its
    header says, ``Risks include disorderly price adjustments in
    various assets classes with possible spillovers into different
    parts of the financial system as well as potential disruption
    of the proper functioning of financial markets.'' Not a good
    outcome, right?
        Dr. Holtz-Eakin. Not desirable.
        Chairman Whitehouse. Not desirable indeed. And then it also
    said, ``A central finding of this report is that climate change
    could pose systemic risks to the U.S. financial system across
    multiple sectors, geographies, and assets in the United States,
    sometimes simultaneously, and within a relatively short
    timeframe.'' Do you recall it saying that?
        Dr. Holtz-Eakin. Not specifically, but I believe that.
        Chairman Whitehouse. And you wrote a little report on it in
    September of 2020 which noted that climate induced risks will
    cause dramatic financial fluctuations and the stability of the
    system will be at risk. And then on the backside of your one-
    pager, you said that the potential risks to financial markets
    posed by climate change represent a pervasive policy challenge.
    Have I quoted you correctly?
        Dr. Holtz-Eakin. Yes.
        Chairman Whitehouse. Thank you. Closing words to Dr.
    Litterman.
        Dr. Litterman. Yes. I would just say I am surprised,
    pleasantly surprised by the amount of agreement by certainly
    the witnesses here and the senators as well, and so I hope we
    can move forward. That's all.
        Chairman Whitehouse. Yes. I hope so too when I think that
    there are things that we can do. I think the key points coming
    out of this are that we've got to move forward globally. We
    can't pretend that we can build a fence around the United
    States, soft climate here and not be affected by what's going
    on in China and India and other places, Russia.
        That we do have the tools to effect the behavior of China
    and India and other countries through carbon border tariffs,
    that they're already underway in the European Union. And that
    if we can pull together and be sensible about this we can take
    advantage of--I forget whether it was you, Dr. Litterman or Dr.
    Carney, who said negative risks, opportunities. That there is a
    huge upside to getting this right.
        I'll close with the Deloitte number, which was that if we
    don't get this right it's $180 trillion in costs to the global
    economy. If we do get it right, it's $40 trillion in added
    value. The upside, the negative risks, the opportunities. Let's
    go for that.
        I want to thank the witnesses for appearing in the
    Committee today. Their full statements will be included in the
    record of our proceedings. As information for all senators,
    questions for the record, are due by noon tomorrow with signed
    hard copies delivered to the Committee Clerk in Dirksen 624.
    Emailed copies are also fine. We will ask the witnesses to
    respond to those questions within seven days of receipt of
    them.
        And with no further business before the Committee, the
    hearing is adjourned.
        [Whereupon, at 11:43 a.m., Wednesday, February 15, 2023,
    the hearing was adjourned.]
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