CBO’s Approach to Estimating Expected Hurricane Damage: Working Paper 2016-02

By Terry Dinan (CBO)

This working paper describes how the Congressional Budget Office estimates the effects of climate change and coastal development on hurricane damage. The estimates themselves are presented in a separate report—Potential Increases in Hurricane Damage in the United States: Implications for the Federal Budget—for three selected future years: 2025, 2050, and 2075.

Climate change is projected to increase damage in two ways. First, climate change is projected to result in more frequent high-intensity hurricanes. Second, for any given storm, rising sea levels are projected to lead to increased damage from storm surges. CBO generates state-specific estimates of hurricane damage on the basis of existing property exposure (which corresponds to existing vulnerability-weighted populations and per capita income in each state) by using damage functions provided by Risk Management Solutions and estimates of the distributions of hurricane frequencies and state-specific sea levels in future years.

Coastal development is also projected to increase damage simply by putting more people and property in harm’s way. In this analysis, coastal development is measured as changes in population and per capita income in areas that are vulnerable to hurricane damage. Specifically, CBO inflates those state-specific damage estimates on the basis of each state’s distributions of vulnerability-weighted population and per capita income in future years, as well as on elasticities that translate changes in population and per capita income into changes in the magnitude of damage.