The 2008 Climate Change Act requires the Government to assess the risks from climate change every five years. In this box, we looked at the most recent assessment published in 2017 and linked the six priority risk areas to how they are fiscal risks.
The Climate Change Act 2008 provides the statutory underpinning for the UK’s approach to cutting greenhouse gas emissions and adapting to the changing climate. Among other things, it requires the Government to assess the risks and opportunities arising from climate change once every five years. The most recent assessment was published in 2017.a It drew on over 2,000 pages of evidence gathered by the Committee on Climate Change (CCC).b In its synthesis of this evidence, the CCC identified six priority risks where more action and/or further research was required. The Government accepted almost all the CCC’s recommendations (with the exception of some related to food security). Those six priority risks were:
- Risks to communities, businesses and infrastructure from flooding and coastal change. Damages from flooding and coastal change were estimated to cost around £1 billion a year, with separate but related risks associated with episodic heavy rainfall, river flows, sea levels, tidal surges and coastal erosion.
- Risks to health, well-being and productivity from high temperatures. With both average and extreme temperatures expected to rise further, there was a need to adapt existing buildings to cope with higher temperatures, while the risks associated with overheating in hospitals, care homes and the like were unknown.
- Risks of shortages in the public water supply, and for agriculture, energy generation and industry. Scenario analysis suggested that demand for water could materially outstrip available resources in many areas by mid-century, thanks to changes in rainfall patterns, increased evaporation and soil aridity, coupled with population growth raising demand.
- Risks to natural capital, including terrestrial, coastal, marine and freshwater ecosystems, soil and biodiversity. The affinity of animals and plants to different regions would be altered by environmental change. High-grade agricultural land was projected to deteriorate – perhaps significantly – due to soil aridity, water scarcity and other factors.
- Risks to domestic and international food production and trade. Increased risk of extreme weather would affect food production and supply chains. And while temperature rises could present opportunities for greater domestic food production, such benefits would most likely be limited by increasing soil aridity and water scarcity.
- Risks from new pests and diseases and from invasive non-native species. Pathogens already present in the UK at low levels might become more prevalent, while new ones might arrive from overseas. A warmer UK would also be at greater risk of diseases carried by mosquitos and ticks. Here, the CCC noted particularly large uncertainties.
Each of these climate-related risks comes, to varying degrees, with associated fiscal risks. Floods and heatwaves disrupt activity, affecting tax revenues. Taking mitigating action will generate more calls on the public purse. And the consequent changes in the structure of the economy will affect both the reliability of tax revenues and the allocation of public spending.
This box was originally published in Fiscal risks report – July 2019