Cost-Effectiveness Of Large-Scale Fuel Reduction for Wildfire Mitigation in California

Executive Summary

Intense wildfires in California impose significant economic impacts well beyond insured losses of destroyed buildings and the costs of fighting fires. When impacts on health and overall disruption to the economy are taken into account, the total economic burden from wildfires in California is estimated to be on the order of $100 billion annually.

These impacts have been increasing over the past several decades due to a warming climate, increasing human encroachment into fire-prone areas, the value of exposed assets and fuel accumulation due to the over-suppression of fires.

In addition to addressing global warming, proactive fuel reduction treatments such as mechanical thinning and prescribed burning, aim to reduce fuel loads to lower fire intensity and severity, thereby reducing the economic burden of wildfires.

Though fuel reduction has recently been embraced at both the federal and state level, it necessitates substantial up-front investment, potentially amounting to billions of dollars annually, and it is not currently clear that these costs are justified from a cost-benefit perspective.

This report critically assesses whether the economic benefits derived from such fuel reduction treatments are sufficient to justify their costs. We offer an empirical evaluation of the effectiveness of fuel reduction treatments by using a novel methodology that quantifies the relationship between fire intensity and fuel loads via machine learning on a large and high-resolution dataset.

We find that if fuel reductions are able to reduce economic losses proportionately to their observed effect on fire intensity, then the economic benefits of fuel reduction treatments are likely to far outstrip their costs.

The state of California has an articulated goal of reducing fuels on 1 million acres per year. If this were to be conducted in order of cost-effectiveness (i.e., the 1 million acres that confer the highest net benefit), then, using our conservative central economic input parameters, it would cost $3 billion annually but would confer a benefit of $10.9 billion annually for a benefit-to-cost ratio of 3.7-to-1 and a net benefit of $7.9 billion annually (Figure ES 1).

Furthermore, we quantify the cost of inaction and find that each year of delay in scaling up fuel treatment to 1 million acres per year results in a net loss of 4 billion dollars.

We also estimate that the optimal rate of fuel reduction in California—the rate that maximizes the net annual economic benefit—is approximately 3.9 million acres per year or 3.9 times the state’s articulated goal.

At a fuel reduction rate of 3.9 million acres per year, and using our conservative central economic input parameters, the annual cost of fuel reduction would be $10.5 billion but it would confer a benefit of $22.2 billion annually for a benefit-to-cost-ratio of 2.1-to-1 and a net benefit of $11.6 billion annually (Figure. ES 1). The cost of each year of delay in scaling up fuel treatment to 3.9 million acres per year is 5.8 billion dollars.

We investigate the robustness of these findings to a wide range of assumptions on the baseline economic burden of wildfires and the costs of fuel treatments. We find that if the economic burden from wildfires is substantially higher than estimated and the cost of treatment is relatively low, then the net benefit of fuel reduction can be as high as ~ $50 billion per year, with costs of each year of delay reaching ~ $25 billion. We also find that external estimates of the economic burden from wildfires would have to be overestimated by three to five times, and external estimates of the cost treatment would have to be substantially underestimated in order for the net benefit of fuel reduction to not be on the order of at least $1 billion annually.

Overall, our results constitute strong evidence that the net benefits of fuel reduction and the cost of delay in scaling up fuel reduction are on the order of at least several billion dollars annually. Thus, these results demonstrate a clear economic rationale for the rapid scale-up of fuel reduction efforts in California to at least the state’s articulated goal of 1 million acres per year, with greater benefits obtained with even more ambitious goals.

Key Points:

• Magnitude of Economic Losses from Wildfires: When indirect effects are included, wildfires in California are estimated to impose economic losses of approximately $100 billion annually, or several percent of California's GDP.

• Costs of Fuel Reduction: Implementing fuel reduction strategies across California's fire-prone areas is estimated to cost in the billions of dollars annually.

• Location-Specific Costs vs. Benefits: We conduct a location-specific cost-benefit analysis, showing that the most cost-effective regions are in the western foothills of the Sierra Nevada Mountains and produce approximately $10,000 in net benefits per acre treated per year.

• State-Wide Annual Costs vs. Benefits: We find that over a large range of assumptions for economic losses from wildfires and the costs of fuel reduction, the economic benefits of fuel reduction far exceed their costs.

• Annual Costs vs. Benefits at a Rate of 1 Million Acres per year: At the state of California’s articulated goal of reducing fuels on 1 million acres per year, costs would be $3 billion annually, benefits would be $10.9 billion annually, for a net benefit of $7.9 billion annually and a benefit-to-cost-ratio of 3.7-to-1 (Figure ES 1). These numbers also imply a cost for each year of delay in scaling up fuel treatment of 4 billion dollars.

• Rate of Treatment that Maximizes the Net Economic Benefit: The optimal rate of fuel reduction in California—the rate that maximizes the net annual economic benefit—is approximately 3.9 million acres per year or 3.9 times the state’s articulated goal.

• Annual Costs vs. Benefits at a Rate of 3.9 Million Acres per year: At an optimal rate of 3.9 million acres per year, costs would be $10.5 billion annually, benefits would be $22.2 billion annually, for a net benefit of $11.6 billion annually and a benefit-to-cost-ratio of 2.1-to-1 (Figure ES 1). These numbers also imply a cost of each year of delay in scaling up fuel treatment of 5.8 billion dollars.

• Circumstances where Benefits Roughly Equal Costs: The above estimates of the economic burden from wildfires would have to be overestimated by three to five times, and the estimates of the cost treatment would have to be substantially underestimated for the net benefit of fuel reduction to not be at least $1 billion annually.