Pro-Growth Tax Code, Regulatory Certainty Best Tools for Businesses to Implement Climate Change Adaptations

Published in Congressional Testimony

Executive Summary

Current Climate Models Produce Conflicting Results: The wide variation in temperature, rainfall and other measures predicted by the various climate models makes it difficult for both policymakers and the private sector to decide when and how much capital to invest in measures to adapt to possible changes in the climate. Business investments are judged on the basis of their costs and benefits so until climate models show more convergence, the business community will have difficulty in justifying adaptation policies beyond “no regrets” (or those that would be undertaken anyway in the normal course of business).

Most Businesses Do Not Plan Investments over Long Time Horizons: Many climate models do not predict significant global warming for at least another 50 to 100 years; their simulations commonly extend to the year 2100. Most businesses however, plan investments over a 3 to 15 year horizon, not 50 to 100 years. Thus, business is more likely to engage in “no regrets’ strategies to address adaptation to climate variability rather than undertake substantial investments in anticipation of changes in climate that may only occur in 50 to 100 years.

Barriers to Investment Caused by Regulatory and Permitting Delays: Conflicting regulations, regulatory uncertainty and permitting delays are often factors hindering U.S. companies from making investments to improve or expand their facilities in order to adapt to extreme weather events or climate variability. For example, in addition to permits to meet federal regulations there are often additional state and local permit requirements which add time and cost to a project getting underway. EPA regulation of GHGs under the Clean Air Act is an example of regulatory uncertainty that is likely to be slowing not only adaptation but also U.S. investment and job growth.

Opportunities for Business to Adapt to Potential Climate Variation: U.S. companies have already begun to adopt “no regrets” strategies to adapt to climate change. For example, some utilities are “hardening” their infrastructure to reduce damage from future weather events and agriculture and the insurance industry are also developing technologies and policies to adapt to climate change.

Financing Adaptation Will Depend on Strong Economic Growth: Sound fiscal policies and a tax code that retains robust capital cost recovery rules can enhance growth. Further serious consideration should be given to a consumed income tax in which all saving is deducted and all investment is expensed. Regulatory reform and reducing permitting delays will also enhance growth.

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