Resilience Incentives

What are federal incentives for climate resilience? 

Federal incentives for climate resilience are programs designed to encourage individuals, communities, states, and businesses to increase their ability to prepare for, recover from, and adapt to climate impacts, such as storm surge and extreme rainfall events. Two common types of federal incentive programs are insurance discounts and loans. The Federal Emergency Management Agency (FEMA) and U.S. Environmental Protection Agency (EPA) run two of the largest incentive programs.

How do federal incentives for climate resilience work? 

Insurance Discounts: Insurance programs can offer incentives in the form of discount premiums when subscribers meet resilience goals. These programs encourage risk-reduction investments while lowering the cost of managing the risk of financial loss due to climate impacts. The primary insurance incentive is housed in the National Flood Insurance Program (NFIP), which aims to reduce the impact of flooding by providing private flood insurance to property owners, renters, and businesses. It incentivizes resilience through the voluntary Community Rating System (CRS), which offers flood insurance discounts to communities who go beyond the minimum requirements of the NFIP and participate in comprehensive floodplain management. The system uses a class rating system where communities can earn points by implementing up to nearly 100 flood mitigation and adaptation activities, including: providing public information, expanding mapping and development standards, reducing flood damage, and developing flood warning and response plans. As communities earn points by increasing flood resilience, their residents qualify for flood insurance premium discounts ranging from 5 to 45%.

Loan Programs: There are several federal loan programs that can be used by states or local stakeholders to finance resilience projects. The programs detailed below illustrate key features: funding can be provided before or after a disaster occurs; it can be focused on projects that directly reduce physical exposure to severe weather or also address broader recovery efforts; and it can be loaned directly to municipalities or to states who then fund projects carried out by local stakeholders.

The EPA administers three water and wastewater finance programs that can increase resilience. The Water Infrastructure Finance and Innovation Act (WIFIA) program aims to accelerate investment in water and wastewater infrastructure by offering long-term, low-cost loans to municipalities. The program prioritizes projects that increase protection from extreme weather events. WIFIA can be used in conjunction with other EPA programs, including the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving Fund (DWSR). These programs provide grants to all 50 states and Puerto Rico to enable them to provide low-interest loans to communities for public water facility improvements. These programs also provide additional flexibility for small and disadvantaged communities in the form of loan forgiveness and other benefits. These are not specifically designed to provide resilience funding, but the program rules do allow consideration of resilience as an additional benefit in project design.

The U.S. Small Business Administration Disaster Loans are available to homeowners, renters and businesses located in a declared disaster area. The loans are a form of federal assistance to repair and replace disaster-damaged property but can also be used for pre-disaster mitigation[1] projects that will increase resilience to future climate impacts. In addition to the funds to repair disaster-damaged property, a property owner can request up to 20% more funds for those pre-disaster mitigation activities. Potential projects include constructing retaining walls, land grading, elevating structures, and relocating utilities.

Key Design Considerations for Federal Incentives for Climate Resilience

The effectiveness of federal incentives is driven by the following design considerations: 

Is the benefit of participation sufficient to justify the cost of implementing resilience projects?

Does the incentive program have a burdensome or complicated application or review process? Is it well promoted such that all potential users know the incentive program is available?

How can programs complement one another to ensure that incentives and objectives to encourage synergies and avoid working at cross-purposes? 

Should pre-disaster projects be eligible, or should a given program only fund post-disaster recovery efforts? Which entities are eligible for a specific funding program? What restrictions, if any, should be placed on the types of projects that can be funded through these programs? Should priority be given to projects based on vulnerability?

Will the resilience actions taken in response to the incentive offer multiple benefits to communities, such as improved air and water quality? How should those co-benefits be factored into eligibility and/or the level of incentive?

U.S. Experience 

Insurance Discounts

As of 2020, over 1,500 communities are participating in the CRS. Although this equates to only 7% of NFIP communities, CRS participating members hold over 70% of all NFIP policies. In 2006, Roseville, CA became the first and only community to receive the highest designation – Class 1 – qualifying residents for a 45% flood insurance discount. In 2001 they completed a $20 million flood mitigation project that included elevating structures at risk of flooding, constructing flood walls, and buying and retiring properties that have experienced flood damage/loss more than once.

Loan Programs

As of June 2020, WIFIA has supported 23 water infrastructure projects, providing loans ranging from $20.7 to $699 million. Supported projects include the Coachella Valley Water District’s $120.7 million stormwater channel improvements project that will reduce stormwater runoff and remove 275 acres from a FEMA Special Flood Hazard Area.

The CWSRF has funded over $144 billion water quality projects. For instance, in 2008 following a severe flooding event in Columbus, Indiana, the CWSRF financed a $51.8 million wastewater treatment plant project. The new plant was constructed in a less-flood prone location and included emergency back-up power sources. The DWSRF program has funded over $41 billion water system projects. In 2017, the City of Beaverton, Oregon used a $5 million DWSRF loan to replace an Aquifer Storage and Recovery well in part to increase the city’s resilience to drought and seismic activity.

The Small Business Administration (SBA) disaster loan program has provided post-disaster financial assistance since 1953. Recently, through the low-interest loan program, the SBA has provided critical help to businesses, nonprofits, homeowners, and renters experiencing major natural disasters, including nearly $459 million for Hurricane Florence, nearly $698 million for Hurricane Michael, and $427 million for the 2018 California wildfires.

Additional Resources 

[1] Note that throughout this section the term “Mitigation” is used to refer to not greenhouse gas emissions reductions but rather actions that prevent or remdiate a harm, such as flooding, fire, storm damage, drought or many other events or conditions.

Related Policies

Resilience Funding


Risk Screening and Disclosure