Federal policy and funding influence behavior. Though the federal government has increased financial support for overall climate policy through the Bipartisan Infrastructure Law, the Inflation Reduction Act, and other recent climate initiatives, existing policies still incentivize risky behavior or undercut efforts to enact effective climate responses.
These perverse incentives are best represented in the federal response to natural disasters.[i] The federal government shoulders the majority of recovery costs through the Federal Emergency Management Agency (FEMA), USDA, and other agencies, investing an average of seven times more into recovery efforts than resilience. In addition, FEMA and the National Flood Insurance Program fund extensive rebuilding after disasters, even in areas vulnerable to repeated disasters that have already caused financial losses to insurers.[ii] This practice blunts the incentive for individuals, firms, and governments to find ways to reduce future risks.
Climate change will devastate much of the nation’s critical infrastructure, particularly coastal installations such as military bases and ports. Though several ports have undergone resilience planning, other port administrations believe they are too big to fail and opt for the costlier route of taking government funding to restore damaged infrastructure.[iii] Policies that disincentivize climate action are not limited to disaster response. The Colorado River Basin has a complicated history of water rights, involving “use it or lose it” access to water. This policy incentivizes farmers to use all the water allocated to them, even if it is much more than needed, and discourages shifts to more climate-resilient, less water-intensive crops. In May 2023, after years of deadlock, the states that access the river’s water reached an agreement that allows the federal government to pay irrigators, cities, and tribes to reduce their water usage. However, even after this compensation, the reductions in usage are still significantly less than the drop in water supply due to climate change.[iv] As many rivers across the country continue a historic period of drought, further alternatives that allow climate-friendly uses of water must be enacted.
Create a federal initiative to identify and rectify perverse policies across all agencies.
Establishing policies that will reform perverse incentives without creating unintended consequences requires significant investment in research and analysis that includes input from policy-makers, industry representatives, and affected communities. A federal initiative to convene an interagency task force that identifies perverse incentives in existing regulation and develops a plan of action will be necessary to avoid inadvertent outcomes.[v] This taskforce should also develop standards for impact assessment to minimize perverse incentives in future regulations.
In the long-run, proactive resilience planning for climate disasters is more cost-effective, timely, scalable, and just than reactive disaster response. Despite this being well known for decades, shifting toward an adaptation planning mindset has been held up by political and more-immediate economic considerations. For example, it is not politically popular to withhold relief after disasters to send a message about the necessity of early adaptation, or to enact policies that encourage community relocation. Therefore, much of the struggle is building political will for necessary but unpopular policies.
[i] Sadie Frank, Eric Gesick, and David G. Victor, Inviting Danger: How Federal Disaster, Insurance and Infrastructure Policies Are Magnifying the Harm of Climate Change (Washington, D.C.: Brookings Institution, 2021), https://www.brookings.edu/research/inviting-danger-how-federal-disaster-insurance-and-infrastructure-policies-are-magnifying-the-harm-of-climate-change/.
[ii] Katharine J. Mach, Caroline M. Kraan, Miyuki Hino, A. R. Siders, Erica M. Johnston, and Christopher B. Field, “Managed Retreat through Voluntary Buyouts of Flood-Prone Properties,” Science Advances 5 (10) (2019), https://doi.org/10.1126/sciadv.aax8995.
[iii] Austin Becker and Eric Kretsch, “The Leadership Void for Climate Adaptation Planning: Case Study of the Port of Providence (Rhode Island, United States),” Frontiers in Earth Science 7 (2019): 29, https://doi.org/10.3389/feart.2019.00029; and Austin Becker, Adolf K. Y. Ng, Darryn McEvoy, and Jane Mullett, “Implications of Climate Change for Shipping: Ports and Supply Chains,” Wiley Interdisciplinary Reviews: Climate Change 9 (2) (2018): e508.
[iv] Christopher Flavelle, “A Breakthrough Deal to Keep the Colorado River From Going Dry, for Now,” The New York Times, May 22, 2023, https://www.nytimes.com/2023/05/22/climate/colorado-river-deal.html.
[v] Sadie Frank, Eric Gesick, and David G. Victor, “Are Federal Disaster Policies Making the Harmful Impacts of Climate Change Even Worse?” Brookings Institution, March 26, 2021, https://www.brookings.edu/blog/planetpolicy/2021/03/26/are-federal-disaster-policies-making-the-harmful-impacts-of-climate-change-even-worse/.
