White House looks to economic threat of emerging climate risks

The US has begun the process to create a task force to look at the macroeconomic threat of climate change.

The Council of Economic Advisers, National Economic Council, Office of Management and Budget, Office of Clean Energy Innovation and Implementation, and Climate Policy Office convened the first meeting on Blue Chip Climate-Risk Macroeconomic Forecasts with economists from the private sector, government, and academia.

The meeting was held as the first step in efforts to build a public-private community of practice around incorporating the physical and transition risks of climate change into macroeconomic forecasting.

In particular, the convening’s goals were three-fold:

  • To identify best practices and novel methodologies for incorporating climate risks into macroeconomic forecasts.
  • To share methodologies developed or considered to date and identify important data gaps or missing modelling capabilities.
  • To elevate the visibility of private-sector assessment and management of climate-related macroeconomic risks in policymaking, and vice-versa.

“One central challenge guides these goals: climate change—and the required policy response to address it—is a first-order risk to the macroeconomy,” said a White House spokesperson. “The transformation of energy systems will entail fundamental shifts in how, when, and where we invest; the physical risks of a changing climate will alter the trajectory and composition of economic growth.

“Given the scale of the risks from climate change, it is critical that we better understand and manage their effects throughout the economy. Additionally, transparency and collaboration in forecasting climate risks help improve our projections’ accuracy and credibility.  This, in turn, offers a stronger foundation from which to develop policies to ensure a smooth, managed transition to a net-zero world and a stable, fair economy.”

They added the Biden-Harris Administration had long recognised the challenge and the risks it posed.

Shortly after taking office, President Biden signed an Executive Order on Climate-Related Financial Risk, which—among other things—instructs CEA, OMB, and Treasury to develop methods to account for the physical and transition risks of climate change in the economic assumptions and long-term budget outlook of the President’s Budget.

“CEA and OMB have been leading a government-wide technical working group (ITWG) to develop methods to account for climate risks in macro-economic forecasting,” they added. “As the Administration works to develop new capacities, particularly with respect to forecasting transition risks, sharing knowledge about and fostering alignment on climate-related risk forecasting methodologies with the private sector can advance the USG’s knowledge base and encourage private actors to advance with us towards incorporating broader economic forecasting.”