Why climate change is costing U.S. households hundreds of dollars a year

CAMBRIDGE, Mass., April 7, 2026 – As extreme weather becomes more frequent, climate-related costs are creeping into everyday expenses, adding hundreds of dollars a year to U.S. household expenses. From higher insurance premiums to rising utility bills and disaster-related income losses, climate change contributes to expenses at a time when Americans are already worried about rising food and energy costs.

In “Who Bears the Burden of Climate Inaction?,” a paper published in the Brookings Papers on Economic Activity, MIT Sloan School of Management professors Christopher Knittel and Catherine Wolfram, along with UCLA School of Law professor Kimberly Clausing, estimate and break down the major sources of these costs and examine how they differ across geographic regions and income groups.

“A lot of the ways in which we discuss climate now are kind of abstract and in the future — maybe these impacts happen in 2050 or 2100 — but we really wanted to emphasize that this is already occurring and it’s having negative financial implications for households,” said Wolfram.

Their findings carry implications for climate policy, too. The researchers note that the costs households already face from climate change may rival, or even exceed, costs of policies like carbon pricing, suggesting the price of inaction may ultimately be higher. “Policymakers are often focused on the price of taking action,” Wolfram said. “But these findings highlight that there are also real and growing costs to doing nothing.”

Bottom line: Climate change can cost households over $1300 annually.

While their list of climate-related expenses is not exhaustive, the researchers found that climate change is already costing U.S. households between $400 and $900 a year, on average. In some places, the burden is far higher: in around 10% of U.S. counties, annual climate-related costs exceed $1,300 per household. Costs are especially concentrated in parts of the West, Midwest, and Southeast, including wildfire-prone areas like California, Gulf Coast states vulnerable to flooding, and tornado-prone regions in the middle of the country. Lower-income households tend to feel added costs most acutely since the expenses make up a larger share of their budgets.

“The impacts are not evenly distributed,” Wolfram said. “Where you live and your income level both play a major role in how much the costs are affecting you.”

The research points to the growing role of extreme weather, and not just rising temperatures, in driving household costs. Expenses from natural disasters are often harder for households to avoid. In recent years, inflation-adjusted billion-dollar weather disasters have risen sharply, with costs reaching about $1,500 per capita in 2023 and 2024. Disasters have been linked to over 2,500 deaths in the last five years.

"U.S. households are experiencing the financial effects of climate change in ways that aren’t always obvious,” said Knittel, who is also the faculty director of the MIT Climate Policy Center. “These costs show up across different parts of people’s budgets, and over time they can become pretty significant."

To gauge the current economic toll of climate change on U.S. households, Knittel, Wolfram, and Clausing used estimates from climate modelers to pinpoint how much of the recent rise in extreme weather events and temperature increases is driven by climate change. To show household impact, they combined multiple U.S. datasets, including information on home insurance claims, cooling costs, and mortality, and county-level damage data covering 13 types of climate-related hazards.

“What was surprising for us was that the costs are really not temperature-related but more storm- and wildfire-related and connected to extreme weather events,” Wolfram said.

Energy expenses are one important driver in household climate costs.

To estimate the growing household costs of energy from increased use, production disruption, and damage to electric companies’ infrastructure, the researchers compared energy use in 2020 to 2024 with that of 1981 to 1990. Recently, more utility companies have been increasing their rates in response to wildfires and hurricanes, either to fund recovery or to mitigate future damage.

For example, three major California utilities in 2023 reported wildfire costs as 15% to 21% of total revenue requirements. In Florida, Florida Power and Light passed on incremental storm restoration costs as an interim monthly charge of $12.02 for 12 months after Hurricanes Debby, Helene, and Milton. Portland General Electric customers in Oregon have also seen more than 2.5% bill increases due to wildfires in recent years.

Households are spending about $35 more per year on average on electricity, according to the researchers. Higher-income households see larger increases since they tend to use more electricity overall, compared to lower income households. Yet, as a share of income, added costs are a heavier burden for lower-income households.

Insurance costs represent another piece of households’ growing financial burden.

The researchers estimate climate change contributed to an average $360 increase in homeowners’ insurance premiums between 1990 and 2023. In some cases, households may be hit twice: by rising utility bills and higher insurance premiums at the same time. “I think people realize it’s harder to get insurance, but they might not tie it directly to climate, especially if they themselves haven’t experienced extreme weather,” said Wolfram.

What are the government climate-related costs?

Government climate-related costs passed on to households typically include having to pay to repair schools, roads, bridges, and airports after natural disasters. They found that the annual average per household cost from these expenses from 2017 to 2021 was nearly $150. Other costs, including higher home prices in lower-risk areas and rising food prices from crops damaged during disasters, are likely contributing as well, but are outside the study. Migration costs could also play a role, as people move away from areas experiencing more frequent disasters.

Taken together, the findings suggest that the price of climate change is already showing up in household budgets across the country. Even relatively modest annual costs can add up, and are likely to grow, posing challenges for policymakers weighing how to address climate risks without further straining household finances.

About the MIT Sloan School of Management

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