[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
           
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                            www.govinfo.gov
                            
                                __________

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