November 14, 2018 / 1:21 AM / a month ago

Breakingviews - Wall Street can be effective forest-fire fighter

Firefighter fight fire near torching trees as wildfire burns near Yosemite National Park in this US Forest Service photo released on social media from California, U.S., August 6, 2018. Courtesy USFS/Yosemite National Park/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. - RC121622C980

NEW YORK (Reuters Breakingviews) - Wall Street can help fight wildfires. California is being ravaged by the most deadly and destructive conflagration in its history. Last year such fires caused $18 billion in damage and consumed up to $180 billion of economic output, or 6.5 percent of GDP, in the Golden State, according to AccuWeather. A new financing tool can reduce fire risk and its impact on water, air and livelihoods.

Those responsible for the upkeep of forests, often federal and state governments, lack the money to properly maintain them. Firefighting alone burns 52 percent of the U.S. Forestry Service’s budget, for example. Therefore many forests are overgrown, packed with dead vegetation - and dry. Invasive species like bark beetles make matters worse.

The Forestry Resilience Bond is one solution. It was developed over the past couple of years by Blue Forest Conservation, Encourage Capital and the World Resources Institute. Yuba Water Agency, some 50 miles south of Camp Fire’s epicenter, sold the first one earlier this month, raising $4.6 million.

The bond raises money from private investors to fund forest maintenance and is paid back over time by those who benefit from the lower risk of fire. That might include land managers like the Forestry Service, water and electricity utilities and governments. Others could join in, since forest fires affect providers of infrastructure, health and agriculture too.

Such insurance makes eminent sense. Wildfires are one of the biggest risks to the United States, as the Intergovernmental Panel on Climate Change has made clear: they stem from, and exacerbate, rising temperatures. The average acreage burned per fire has doubled since the mid-1980s, according to the National Academy of Sciences, and the Nature Conservancy reckons the frequency of wildfires in the western United States has risen 400 percent since 1970.

The Yuba bond mostly involved nonprofits and government agencies, though CSAA Insurance is an investor. It was also arranged without the help of big banks, but the size of potential demand suggests they can play a role. California alone needs $6 billion for forest restoration, estimates the U.S. Department of Agriculture. Raising even part of that requires a substantially bigger hose.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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