Assessing Methods to Integrate the Physical Risks and Transition Risks and Opportunities of Climate Change into the President’s Macroeconomic Forecast

The Federal Government has broad exposure to the physical risks of climate change and the transition risks associated with the global shift away from carbon-intensive energy sources. At the same time, the shift to clean energy provides a generational opportunity to create new sources of economic growth. These transitional opportunities and challenges affect future output growth and other economic outcomes and are therefore relevant to the President’s Budget. Building on nearly three years of work completed under Section 6(a) of Executive Order 14030 on Climate-Related Financial Risk, this paper presents a step-by-step methodology for quantifying these risks and opportunities into a macroeconomic forecasting framework with the goal of more accurately projecting near-term macroeconomic outcomes relevant to the President’s Budget. For each step, we assess available tools, methodological tradeoffs, and directions for further research based on the current literature.

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