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This edition was written by Sarah Ahmad, Georgia Nabors, Louise Sheiner, and Jack Spira.
Conventional wisdom holds that unilateral climate action is not economically feasible due to free-rider problems. However, Adrien Bilal of Stanford and Diego Känzig of Northwestern use new damage estimates from global rather than local temperature shocks and find that decarbonizing over 80% of economic sectors would be cost-effective for the U.S. and EU. They estimate that domestic carbon emissions cost the U.S. $226 per ton and the EU $216 per ton—about 10 times higher than conventional estimates. Comparing these costs with those of decarbonizing, they conclude that decarbonizing 86% of the U.S. economy and 84% of the EU economy would pay for itself, suggesting that large economies may have stronger incentives for climate action than previously thought.
Linking mortgage, insurance, and credit information for 6.7 million borrowers, Shan Ge of NYU, Stephanie Johnson of Rice University, and Nitzan Tzur-Ilan of the Federal Reserve Bank of Dallas find that homeowners' insurance premiums—averaging $1,926 per year in recent years—are increasing with the rising risk of climate-related disasters. These increasing premiums, in turn, drive greater rates of mortgage delinquency: the average premium increase from July 2022 to June 2023 was associated with an 8% (0.3 percentage point) increase in the average probability of delinquency. The effect is more pronounced for borrowers who are more financially constrained, namely for those with higher debt-to-income ratios and those with smaller (non-jumbo) mortgages. Higher premiums also result in higher rates of voluntary mortgage prepayment—primarily by borrowers choosing to relocate—as well as higher rates of credit card delinquency, higher credit utilization, and lower creditworthiness.
The U.S., the Netherlands, and Japan imposed significant restrictions on exports of high-end computer chips and components to China in 2022. Colin Caines, Sharon Jeon, and Cheyenne Quijano of the Federal Reserve Board argue that while overall Chinese chip imports remain close to pre-pandemic trends, export controls likely strained access to high-end chips because Chinese firms lack the production capacity and equipment to build these advanced semiconductors. Chip manufacturing is a highly complicated process involving geographically concentrated inputs, significant research and development costs, and specialized human capital. For these reasons, there are few opportunities for substitution along the semiconductor supply chain, and it is currently infeasible for Chinese firms to produce the equipment used to make high-end chips. Production is largely dominated by the U.S., Taiwan, and Korea. Dutch firms have a virtual monopoly on machines necessary to make high-end chips, and China’s imports of this equipment grew sevenfold between the announcement and the implementation of the Dutch export restrictions.
"Q: I believe these tariffs... [are] going to be paid for by our workers and small businesses. All through the campaign we heard they weren't, that foreign countries were going to pay it. I think that's baloney. It's going to be paid for by workers and small businesses. So your response?"
"A: Yes, senator, I would respectfully disagree and the history of tariffs and tariff theory, optimal tariff theory does not support what you're saying... If we were to say use a number that has been thrown around in the press of 10%, then traditionally the currency appreciates by 4%," says Scott Bessent, President Trump's nominee for Treasury Secretary.
"So the 10% is not passed through. Then we have various elasticities, consumer preferences may change. And finally, foreign manufacturers, especially China, especially China, which is trying to export their way out of their current economic malaise, they will continue cutting prices to maintain market share."
Call for papers
We are seeking papers on the municipal bond market, state and local fiscal issues, taxes, infrastructure spending, and climate change for the Municipal Finance Conference to be held in-person Tuesday, July 22, 2025 and Wednesday, July 23, 2025 in Washington, D.C.
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
