Last month, the Congressional Budget Office published a working paper entitled “The Effects of Climate Change on GDP in the 21st Century.” Using historical data, analysts at CBO projected the impact of climate change on The United States' gross domestic product (GDP) in 2100.
Their findings track with three scenarios: the worst, the less bad, and the silver lining.At its worst, climate change will result in a GDP 21% lower than it would’ve been had global temperatures held steady after the year 2024. Less bad was CBO’s average prediction of a less drastic 6% decrease in GDP relative to historical trends. The silver lining predicted by CBO’s model was the 5% chance of a 6% or greater increase in GDP.
Examples of Climate Change Impacting Economic Growth
In day-to-day life, a 6% reduction in US GDP because of climate change may come from impacts like slower productivity for workers in outdoor occupations like construction who battle the rising temperatures. More workers may miss work due to heat-related medical conditions. Air-conditioners fighting off rising temperatures outside will strain an already overburdened power grid. Businesses must pay higher energy bills, crowding out more productive uses of their resources.
Another cost to the economy from climate change comes from natural disasters. According to the National Centers for Environmental Information, the US sustained 27 climate disasters in 2024 causing losses exceeding $1 billion. The weather events which caused this damage included one drought, one flood, 17 severe storms, five tropical cyclones, one wildfire, and two winter storms.
Figure 1: The United States had 27 weather events costing $1 billion or more in 2024
Long-term, the model’s 21% predicted reduction would have colossal implications. When less money circulates in the economy, the government receives less revenue in taxes. This will result in budget deficits, tax increases, or both, as the government tries to make up for the losses. This could have stronger impacts on budgets in southern states, which some experts project will bear the brunt of the impact of climate change.
With a smaller economic base available to fund the government, there is less money to fund social services like SNAP, rental assistance, Medicare and Medicaid. It could also impact the ability of state and local governments to fund K-12 education, which could have compounding impacts on local economies for decades to come.
All of these factors necessitate targeted, efficient, and effective interventions in the immediate future.
What does this mean for policymakers, businesses, and citizens?
CBO’s findings confirm, in part, what we have always known: climate change is unpredictable. The National Centers for Environmental Information published the following chart which tallies the rising costs of extreme weather events in the US over time. From 1980 to 2024, the costs associated with severe weather events appear to be rising exponentially.
Figure 2: Severe weather events have risen in the United States since the 1980s.
Both preventative measures like carbon abatement and adaptive measures like building a healthy reserve fund can help states combat the oncoming volatility brought about by climate change.
Next Steps - What Can States Do?
To effectively address the economic impacts of climate change, states can take steps to prevent and adapt to climate change. Below are four examples.
Renewable Portfolio Standards - These policies require a defined share of electricity be generated from renewable sources like solar, water, or wind power. Most of these programs apply to electricity, though some include heating fuels and energy-efficient appliances.
Cap-and-Trade - This system sets increasingly strict limits on the amount of pollution one entity can produce. Companies with excess allowances can sell the credits to companies in need of more. This produces an incentive system to reduce excess pollution.
Carbon Taxes - This tax incentivizes companies to reduce CO₂ emissions by taxing them per ton of CO₂ emitted.
Budget Stabilization Funds - These “rainy day” funds are set aside by governments during relatively good economic times to cover budget shortfalls during lean seasons. These funds can stabilize public services by avoiding sudden tax hikes or spending cuts.
Each of these strategies can help states slow climate change and deal with the economic problems that will come from it. The best action states can take now is to manage the risk of increasing climate disasters and do their best to plan for the long-term economic problems it will create.