[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
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HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
February 15, 2023
__________
Printed for the use of the Committee on the Budget
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
51-948 WASHINGTON : 2023
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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
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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\
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\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\
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\2\ Prepared statement of Senator Grassley appears in the appendix
on page 36.
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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.
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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\
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\4\ Prepared statement of Dr. Litterman appears in the appendix on
page 46.
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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\
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\5\ Prepared statement of Dr. Holtz-Eakin appears in the appendix
on page 51.
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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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