Readout of Second Convening on Climate-Risk Macroeconomic Forecasts
Earlier this week, the Council of Economic Advisers and the Office of Management and Budget, with the Climate Policy Office, Office of Clean Energy Innovation and Implementation, and Office of Science and Technology Policy, the Department of Energy, and the National Oceanic and Atmospheric Administration, hosted a convening on Climate-Energy-Macroeconomic Forecasting with economists and financial sector experts from the private sector and government.
One central fact informed this convening: climate change is an “emerging and increasing threat to the global financial system and economy,” and the required policy responses to address it will have first-order implications for the macroeconomy. Recent events—such as stress in the home insurance markets or how drought conditions are affecting ocean shipping—underscore that the effects of climate change on economic outcomes are not far-off concerns, but ones that Americans are already facing. Meanwhile, the transformation of energy systems, transportation, and industry continue to gain pace, spurring innovations and investment across the economy and enhancing the resiliency of our communities. Climate risks and climate policies are already influencing macroeconomic dynamics, and are becoming increasingly salient for the macroeconomic forecasting community.
The Biden-Harris Administration understands that the accuracy and credibility of economic forecasts provide the foundation from which we develop policy. This is why 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. For three years, CEA and OMB have been leading a government-wide technical working group to develop methods to account for climate risks in macroeconomic forecasting, as laid out in a series of white papers and other materials. As the Administration works to enhance capacities, particularly with respect to forecasting transition risks as well as opportunities, sharing knowledge about and fostering alignment on climate-macroeconomic forecasting methodologies with the private sector will advance the knowledge base and facilitate improvements in our collective analytical capacity.
Transparency and collaboration sit at the core of scientific inquiry. This is especially true as economists turn to assessing climate risks and benefits of the clean energy transition in the macroeconomic outlook. The convening’s discussion focused on a set of questions this community is grappling with. These included: how to leverage climate-related data to better understand the current economic environment and the macroeconomic outlook; where there are data gaps, and how these could be filled; how to address uncertainty and tail weather events; how to forecast changes to sectoral investments, the demand for capital, and the effects of those investments on the structural macroeconomic outlook; and how to account for the upsides of building a clean energy economy, including on climate resiliency, efficiency, productivity, and the macroeconomic outlook more generally. The convening built upon a similar one hosted by the White House in February 2023, reinforcing our partnerships with the broader macroeconomic forecasting community.
Over the coming months, we look forward to engaging further with our community partners to advance our capabilities, inform the efforts of the interagency working group, and incorporate climate issues into broader economic forecasting and decision-making.
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