The Rising Cost of Climate Change: Beyond Temperatures and Emissions

Climate change is often assessed through scientific metrics like rising temperatures and carbon emissions. Though, its impact is increasingly visible in household finances – higher insurance premiums, increased energy costs, and growing expenses for protecting homes, travel, and health. When US President Donald Trump revoked a key government ruling on greenhouse gases in February 2026, framing it as a way to lower car prices for Americans, he addressed only a small part of a much larger financial picture.

Climate Change as a Systemic Financial Risk

Climate change isn’t a localized problem affecting one area at a time; it’s a widespread financial risk impacting multiple aspects of household finances simultaneously. When risks become systemic, traditional mitigation strategies like insurance or financial planning become less effective.

Revoking the “Endangerment Finding”

In February 2026, President Trump revoked the US’s 2009 “endangerment finding,” which established the link between greenhouse gas buildup and harm to human health, and wellbeing. The New York Times reported that this action eliminated the legal basis for federal regulations aimed at curbing greenhouse gas emissions. Trump claimed the move would save Americans “trillions of dollars,” but this overlooks the broader financial implications of climate change.

Direct Impacts on Household Budgets

Climate change directly impacts household budgets through converging pressures. These include potentially unaffordable or unavailable insurance, which can affect property values. Utility costs are rising, wages may become less stable, and retirement savings are vulnerable to climate-driven shocks.

Home Values and Climate Risk

For many families, their home represents their largest financial asset. However, climate risk is increasingly factored into property markets. Research indicates that in the United States, homes exposed to flood risk may be overvalued by between $121 billion and $237 billion. The First Street Foundation estimates that climate risk could erase as much as $1.47 trillion in US home values by 2055.

In the UK, house prices in areas affected by inland flooding have fallen by an average of 25% compared to similar non-flooded areas, although coastal flooding has been associated with price reductions of roughly 21%. The Environment Agency estimates that one in four homes in England could be at risk of flooding by mid-century.

The Strain on Insurance

Governments have attempted to prevent climate risk from making insurance unaffordable through schemes of last resort. However, these safety nets are under increasing financial strain. The US National Flood Insurance Program (NFIP) has accumulated over $22 billion in debt to the US Treasury after repeatedly borrowing to cover claims. In the UK, Flood Re, designed to maintain affordable flood insurance, has seen reinsurance costs rise by around £100 million for 2025/26. France increased the surcharge on its national natural catastrophe scheme from 12% to 20% in January 2025 to ensure financial stability.

Rising Utility Costs

As utilities invest in resilient infrastructure, these costs are often passed on to consumers through higher standing charges and tariffs. For example, wildfire-related grid upgrades in California added 7% to 13% to household energy bills in 2023.

The Illusion of Savings

Rolling back US vehicle emissions rules is presented as a $2,400 reduction in the price of new cars. However, this isn’t a guaranteed discount for consumers. Carmakers aren’t obligated to pass on the savings, and petrol drivers may finish up paying more at the pump. The figure represents a reduction in manufacturers’ compliance costs, not a direct benefit to car buyers.

Impact on Employment and Health

Climate change threatens employment in sectors reliant on outdoor function, such as agriculture, construction, and tourism. The 2022 California drought cost farming around $1.7 billion in revenue and nearly 12,000 jobs. The International Labour Organization warns that climate hazards expose workers to risks like heat stress, air pollution, and physical injury, potentially affecting 2.4 billion workers globally.

Climate Risk and Retirement Savings

Regulators and investors increasingly view climate change as a systemic risk that can undermine pension funds. Risk management firm Ortec Finance warns that failing to transition to a low-carbon economy could reduce global pension fund returns by around 33% by 2050. Physical risks (floods, heatwaves) and transition risks (policy shifts, repricing of carbon assets) can weaken the performance of equities, property, and infrastructure.

when climate risk is systemic, short-term “savings” are illusory. They are quickly offset by higher costs elsewhere. Climate policy, rather than increasing the cost of living, helps to prevent climate shocks from driving prices even higher.