The True Cost of Wildfires

Analyzing the Impact of Wildfires on the California Economy


The wildfire crisis in California has reached new heights in the last five years. Entire communities have been destroyed and countless homes and businesses are at risk. Wildfires now pose a major threat to the California and Bay Area economies. The destruction that they leave behind is only part of the economic loss. As another devastating wildfire season winds down in California, this report analyzes the full costs—in terms of economic and health impacts—of previous wildfire seasons and makes recommendations for how new federal and state spending can strategically target forest resilience and fire mitigation investments.

Executive Summary

Wildfires have been a natural threat to the Bay Area and State of California for centuries, but longer wildfire seasons and more destructive fires have now pushed much of California into a heightened state of alert for wildfires and the smoke-filled skies they produce. The acreage burned per wildfire has been increasing drastically in recent years, resulting in more destructive wildfire events and larger economic losses. The state’s eight largest recorded wildfires by acreage have all occurred since 2017, with 2021’s Dixie Fire recently added to the list. When counting insured losses, the 2020 wildfire season is estimated to have produced between $5 billion and $9 billion in destruction, and this comes after wildfire seasons in 2017 and 2018 that each produced more than $10 billion in insured losses.

The record-breaking fires over the last five years have illustrated an urgent need for policy action to reduce economic losses and adverse health effects experienced across the state, while creating less wildfire-related risk overall. This report explores the health and economic costs of wildfires in California, with a particular focus on the Bay Area, and outlines a set of immediate and long-term strategies for intervention and resilience.

Reasons for the Rise of Extreme Wildfire Events

There are several key reasons behind the increase in destructive California wildfires:

• The increase in acreage burned can be partially attributed to record-breaking droughts over the last decade. Extended periods of drought have created drier conditions more susceptible to fire.

• Climate change has been a key factor in increasing the state’s risk for wildfire. Hotter temperatures create drier conditions, exacerbate drought, and make fires easier to spread and harder to put out.

• Drought and warming temperatures have led to elevated levels of tree mortality. Over 147 million trees died in the state between 2010 and 2018, providing fuel for larger conflagrations. Drought and high temperatures also contribute to the spread of bark beetle infestations that can weaken or kill trees. High tree mortality leads to more burnable biomass and faster-moving, harder-to-control fires.

• Fire suppression strategies over many decades have resulted in high fuel loads in the state’s forests. By quickly extinguishing fires in forested and woodland areas, fire suppression policies have resulted in the buildup of tree debris and plant material.

• An increase in residential development in the wildland-urban interface (WUI) has led to greater property destruction. Land defined as WUI in California has grown between 1990 and 2010, and now encompasses 6.4% of the state’s total land area. Additionally, 45% of homes constructed in the state between 1990 and 2010 were built in the WUI. As the threat of severe wildfires increase, these homes are increasingly susceptible to property damage.

Economic and Health Impacts of Wildfires

As wildfire seasons increase in length and intensity, the resulting economic, environmental, and health impacts worsen. The total economic impacts of a wildfire go well beyond the cost of damages, as they include health costs and indirect losses due to power shut-offs, business closures, travel cancellations, supply chain disruptions, among other costs. Environmentally, there has been a sharp increase in wildfire-induced emissions, including carbon dioxide (CO2) and inhalable particulate matter (PM). This report explores recent wildfire case studies—the North Bay fires of 2017 and the Camp Fire of 2018—to further illuminate the economic and health costs associated with wildfires in California and the Bay Area:

• The 2017 North Bay complex of wildfires, occuring in the fall of 2017 in Napa and Sonoma Counties, caused a steep drop in overall employment and a spike in unemployment claims. Immediate employment losses were felt most by the leisure and hospitality sectors, and there were corresponding drops in hotel tax revenue and Sonoma County Airport passenger activity. Retail employment in Sonoma and Napa counties still has not recovered to pre-fire levels.

• Wildfires across California in 2018 produced $7.8 billion in estimated health costs in the Bay Area, upticks in hospital admissions, and an increase in polluted air. The 2020 wildfire season also brought prolonged unhealthy air quality to the region; the monthly maximum AQI was above 100 (considered unhealthy for sensitive groups) for three straight months as measured by multiple monitoring stations across the region.

• In addition to employment and health impacts, wildfires also cause shifts in the housing market. As fires across the region destroy homes and displace residents, some cities have failed to rebound, causing a stagnant or declining population in counties with large wildfire events. Housing supply reduction and population shift has led to impacts on local rental markets as well, with asking rents jumping almost 40% in Sonoma County in the aftermath of the Tubbs Fire in 2017. These impacts can extend outside the county or state, as households displaced by wildfires search for alternative housing.

Resilience Strategies for the Bay Area and California

This report outlines several key recommendations that can help protect the region and state against the health and economic effects of wildfires. Recently, significant policy announcements were made to add more funding to wildlife resiliency efforts at the state and federal levels, but more immediate action is critical to preventing future catastrophic wildfires. The recommendations listed include those that can have immediate fire prevention and mitigation effects, as well as those that can provide longer-term safeguards to the economy, public health, and individual households.

Invest in Forest Health Projects at Scale

• Create stewardship agreements between federal government and state, local, and tribal partners – The majority of the state’s forested lands—58% according to the Newsom Administration—is managed federally through the U.S. Forest Service and Bureau of Land Management. State, local, and tribal entities have little ability to influence forest management projects on federal lands; yet these levels of government often have more local expertise and greater staff resources to move projects through permitting processes. Agreements should be formed to allow non-federal entities to administer forest health projects on federal land.

• Mobilize a regional coalition and create protection and preparedness plans – Wildfires do not obey political boundaries. Creating regional coalitions focused on “fire sheds” can help to prioritize forest health investments (e.g., prescribed burns, fire breaks, and forest thinning), while working to secure resiliency investments from the state and federal government.

Strengthen Wildfire Preparedness Planning

• Provide incentives for home hardening projects and defensible space – Home retrofitting to protect homes from wildfires, or “home hardening,” can help limit the economic damages for homeowners and insurers, and the spread of wildfires more broadly. Sub-regions and/or counties should create regional funding pools to offset and alleviate homeowner costs for home hardening.

• Support the creation of wildfire smoke messaging and preparedness plans – Clear, consistent public health guidance is critical for communities to prepare for poor air quality from wildfire smoke. Guidance may include accessible air quality data, the appropriate use of masks and air purifiers, and staying indoors or going to a clean air center.

• Build more regional partnerships and alliances for wildfire response – Regional partnerships are critical to wildfire preparedness and response. Alliances should be strengthened across local agencies that support disadvantaged communities and that can establish a network of clean air facilities across the state.

Structure New Models for Forest Management and Wildfire Recovery

Explore the feasibility of creating a sustainable wood products market in California – Rather than open burning the woody byproducts of forest management, opportunities to create a sustainable wood products market are needed. The $25 million in funding (as part of the larger wildlife prevention plan signed by Governor Newsom in April 2021) for workforce development, market development, and a revolving loan fund to expand private sector investments in forestry management are good first steps, but long-term agreements between the private sector and government landowners are necessary to ensure availability of feedstock for biomass products such as cross-laminated timber, wood pellets, and biofuels.

• Create transparent pathway for insurance carriers to factor all risks and mitigations into their insurance rates – Current insurance regulations do not allow insurers to use forecasted catastrophe models in their insurance rate calculations. This policy should be revised to allow for proper insurance risk assessment and to give potential homeowners more accessible and accurate risk information when deciding where to buy. This change would also allow insurers to factor fire mitigation efforts, such as home hardening at the household and community level, into their premiums.

Address Land Use as a Key Contributor to Wildfire-related Damages

The potential economic and health costs of constructing new homes in the wildland-urban interface should be assessed and factored into any new construction – While the state and region have little direct control over drought and climate change, there are housing policy adjustments that can limit future destruction. However, it must be recognized that any policy that limits building in the WUI would further deepen the state’s housing supply-demand mismatch and its affordability challenges. As such, the following recommendations must be accompanied by policies that require additional building of units in less-fire-prone areas in the existing urban and suburban footprint:

o Stricter building codes for new home construction in the WUI. The Camp Fire damaged 49% of Paradise’s homes built under new fire-safe construction codes enacted in 2008, suggesting that building codes could be further strengthened.

o Higher parcel tax for new homes built in the WUI. A differential parcel tax on new construction in the WUI could recapture public costs to protect new structures and disincentivize high-risk construction.

o Public purchases of parcels of land that have experienced total loss. Rather than rebuilding homes that are at high risk for future fires, counties could provide financial incentives to rebuild elsewhere by purchasing parcels that have experienced total loss while simultaneously re-zoning safer areas for new housing construction.