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CEA: A Progress Report on Climate-Energy-Macro Modeling [blog]

Climate change presents intensifying physical risks across the Nation. In addition, the global shift away from carbon-intensive energy sources and industrial processes presents transition risks to workers, firms, and communities. Both physical and transition risks will have consequences for the economy, society, and overall well-being. The Biden-Harris Administration is committed to sound financial and fiscal management, which requires integrating these physical and transition risks into all areas of decision-making. In particular, Section 6a of President Biden’s Executive Order 14030 on Climate-Related Financial Risk directs the Office of Management and Budget (OMB), Department of the Treasury, and the Council of Economic Advisers (CEA), among other agencies, to “identify the primary sources of Federal climate-related financial risk exposure and develop methodologies to quantify climate risk within the economic assumptions and long-term projections of the President’s Budget.”

A Memorandum from CEA, OMB, and Treasury, who are jointly responsible for producing the economic assumptions that underly the President’s Budget, provides guidance on how the CEA, OMB, and Treasury should coordinate with agencies to support the quantification, assessment, and management of economic and financial climate risks. The following enhancements could improve the Federal Government’s macroeconomic modeling tools for climate risk-management applications:

-- Include nonprice policies,
-- Account for transitional dynamics and frictions,
-- Account for interaction between physical and transition risks,
-- Account for effects on particular income groups, subnational units, and subsectors of the economy,
-- Account for extreme event risks, and
-- Include short- and intermediate-term timescales and greater spatial granularity.

Memo: https://www.whitehouse.gov/wp-content/uploads/2023/12/Memo_Tools-for-Near-Term-Climate-Risk-Management.pdf [4 pages]
Blog: https://www.whitehouse.gov/cea/written-materials/2023/12/22/a-progress-report-on-climate-energy-macro-modeling/

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