The Future Costs Of Hurricane Damage

The Congressional Budget Office (CBO), a federal agency providing budgetary and economic information, released a report this month indicating that increases in hurricane damage and the resulting requests for federal aid will outpace the country’s economic growth. If these predictions come to fruition, utilities in coastal areas should be prepared to handle increased storm surges and recover without abundant federal aid.

The report, titled “Potential Increases in Hurricane Damage in the United States: Implications for the Federal Budget,” puts forth a dire vision for the future threat of storms. CBO cites two researchers who predict the frequency of hurricanes to increase steadily. Projecting for the years 2025, 2050, and 2075, one researcher consistently estimates increases in the frequency of Category 4 and 5 hurricanes and the other estimates increases in the frequency of all categories of hurricane.

CBO explains that rising sea surface temperatures, caused by a warming atmosphere, and rising sea levels, caused by this warming plus melting global ice sheets, are major factors of climate change that increase the likelihood of hurricanes. Other factors, like increased wind shear, could reduce the likelihood. Overall, however, the evidence seems to point one way only.

“Models produce a wide range of potential outcomes, but many predict an increase in the probability of major hurricanes (Category 3 and higher) in the North Atlantic,” the report reads.

Unfortunately, this prediction is colliding with growing development on coastal areas. As more people relocate to coasts and buildings are erected, the damage that hurricanes wreak will naturally rise. CBO’s estimated percentage of the country’s population living in areas with “substantial expected hurricane damage” will grow from 0.4 percent today to 0.6 percent in 2025, 1.4 percent in 2050, and 2.1 percent in 2075.

CBO ran thousands of simulations to estimate the damage from hurricanes in the future. It found that a 10 percent increase in population of coastal areas would result in a 2.5 percent increase in wind damage and a 5 percent increase in damage from storm surges. A 10 percent increase in per capita income would trigger a 10 percent increase in wind damage and a 7.5 percent increase in damage from storm surges.

“The combined effects of climate change and coastal development will cause hurricane damage to increase in the future,” the report reads. “Both in dollar terms… and in terms of the percentage of the U.S. population living in counties where expected damage is particularly burdensome.”

CBO estimates that the U.S. currently allocates about .16 percent of its GDP to hurricane damage. By 2025, it expects this to remain the same. But by 2050, CBO believes hurricane damage will account for .19 percent of the projected GDP for that year, and .22 percent of projected GDP by 2075. Applied to today’s economics, those would be damages of $34 billion and $39 billion, respectively.

“The growth in expected hurricane damage is expected to exceed the growth in the nation’s ability to pay for such damage,” the report reads. “The U.S. economy, and thus the nation’s ability to pay for hurricane damage, is projected to grow over time... However, CBO also estimates that the combined forces of climate change and coastal development will cause expected hurricane damage to grow more quickly than the size of the economy.”

So how do we curb the oncoming damage and costs inflicted by hurricanes before it is too late? While CBO does not make explicit recommendations to ensure its nonpartisan analysis, the report does include practices that the agency believes could reduce the oncoming costs of hurricane damage.

Firstly, if we could limit greenhouse gas emissions we could minimize rising sea levels and reduce the frequency of future hurricanes. However, CBO acknowledges that several factors make this an ineffective route. Much of the damage to the atmosphere has already been done and sea levels will continue to rise in the near future no matter how drastically greenhouse gasses were reduced now. Also, it would take a global effort to reduce greenhouse gasses and the U.S. wouldn’t be able to make a tangible difference alone.

“A coordinated effort to significantly reduce global emissions could lessen the potential for increased hurricane damage in the United States between now and 2075; but, the extent of the reduction would be uncertain and would probably be small,” the report reads.

As an alternative, the report suggests shifting more of the hurricane recovery costs to local and state governments and private entities, thus reducing coastal development. When the federal government offers aid to hurricane victims it reduces the incentive to live and do business in less susceptible areas.

“In essence, federal assistance subsidizes growth in areas that are vulnerable to hurricane damage by shielding households, businesses, and state and local governments in those areas from the financial consequences of such decisions,” the report reads.

CBO has found that the federal government can reduce its share of the cost by increasing insurance requirements for coastal households and businesses, increasing the minimum amount of damage that is used to determine when federal aid should be administered, and reducing the minimum share of costs taken on by the federal government.

Lastly, CBO has found that increased investment in structural changes would reduce hurricane vulnerability.

“To the extent that the up-front costs of such measures are more than offset by the decrease in expected costs resulting from hurricane damage, the federal government could reduce total hurricane-related spending by undertaking more hazard mitigation or by providing incentives for state and local governments to do so,” the report reads.

When asked specifically what utilities can do to mitigate potential hurricane costs and prepare for the future, CBO recommended reviewing its 2002 report “Future Investment In Drinking Water And Wastewater Infrastructure.” Regardless of the actions we take, it appears that increased hurricane damage and resulting costs are a certain part of the future.