New Fire Hazard Risk from Policy Responses to Climate Change

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New Fire Hazard Risk from Policy Responses to Climate Change Catastrophe and Climate New Fire Hazard Risk from Policy Responses to Climate Change February 2021 2 New Fire Hazard Risk from Policy Responses to Climate Change AUTHOR Esther Boyle (Graduate Student) (Arizona State University) SPONSOR Climate and Environmental Beckett Sterner, PhD (Co-PI) (Arizona State University) Sustainability Research Ann Kinzig, PhD (Co-Author) (Arizona State University) Committee (CESRC) Petar Jevtic, PhD (PI) (Arizona State University) Caveat and Disclaimer The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the Society of Actuaries or its members. The Society of Actuaries makes no representation or warranty to the accuracy of the information. Copyright © 2021 by the Society of Actuaries. All rights reserved. Copyright © 2021 Society of Actuaries 3 CONTENTS Executive Summary .................................................................................................................................................. 4 Section 1: Introduction ............................................................................................................................................. 5 1.1 Motivating Examples ........................................................................................................................................... 6 1.2 Challenges and Opportunities for the Insurance Industry .................................................................................... 6 Section 2: Direct and Reciprocal Effects of Climate Change on Wildfire Risk .............................................................. 7 Section 3: New Fire Hazard Emerging from Tree Planting .......................................................................................... 8 3.1 Carbon Sequestration by Afforestation .................................................................................................................. 8 3.2 Reforestation ........................................................................................................................................................... 9 3.3 Drivers of Risk ........................................................................................................................................................ 10 Section 4: Emerging Policies and Practices to Reduce Wildfire Risk ......................................................................... 10 Section 5: Assessing New Fire Risk for Actuaries ..................................................................................................... 12 Section 6: Conclusion .............................................................................................................................................. 12 Acknowledgments .................................................................................................................................................. 14 References .............................................................................................................................................................. 15 Feedback ................................................................................................................................................................ 20 About The Society of Actuaries ............................................................................................................................... 21 Copyright © 2021 Society of Actuaries 4 New Fire Hazard Risk from Policy Responses to Climate Change Executive Summary The unprecedented losses associated with recent wildfires are yet another call to insurers to understand how climate change is impacting the landscape of fire hazards. In this context, it is important to understand that individual and policy responses to wildfires and climate change, in particular carbon sequestration, are introducing desired benefits but also unintended new fire hazard risks. A case in point comes from highly publicized tree planting initiatives that aim to sequester carbon from the atmosphere or restore regions previously affected by wildfires or agricultural degradation. Unfortunately, without careful planning and maintenance, afforestation and reforestation initiatives such as these can lead to dramatically increased fire hazard. When fire hazard mitigation efforts have been made, the residual fire risk is subject to contributing factors such as the impact of tree types, their spatial arrangements, and relationships between trees and surrounding ecosystems. As an example, the efficiently planted fast growing species in the “pines in lines” arrangement can be surprisingly highly prone to fire hazard. These determinants should be of interest to insurers in order to model accurately the new fire risks emerging from these policies. It is only by accurately understanding emerging wildfire risks that the insurance industry has the opportunity to encourage conscientious policy action and land management through green policies while operating in a sustainable manner. Copyright © 2021 Society of Actuaries 5 Section 1: Introduction The actuarial community is at the forefront of understanding the impacts of climate change on human conditions. Increased frequency and severity of extreme weather events - such as intense droughts, wildfires, and hurricanes - are some of the most obvious manifestations of climate change (NASA, 2020), and numerous studies over the last two decades have explored the impacts of climate change on losses due to extreme events such as hail, floods, and winter storms (Botzen & Bergh, 2008; Changnon, 2009; Born, et al., 2013). Responding to recent dramatic losses, the Actuaries Climate Index has tracked climate change in a similar manner as the consumer price index since 2016 (American Acadmey of Actuaries, Canadian Institute of Actuaries, Casualty Actuarial Society, Society of Actuaries, 2020), and climate change was identified as the number one current emerging risk by the 12th Emerging Risk Survey sponsored by the Joint Risk Management Section of SOA, CAS, and Canadian Institute of Actuaries (CIA) (Rudolph, 2019). Less investigated, however, are the impacts of new policy actions and human behavior in response to the effects of climate change, a pressing example of which is removing carbon from the atmosphere (carbon sequestration) by planting trees. Additionally, reforestation (i.e., planting trees) is a common approach to restoring regions already damaged by forest fires more rapidly than through natural reseeding. Planting trees without informed consideration to what, where, and how the planting is done, may overlook important secondary effects on future hazards. The number of trees planted cannot safely be the sole focus of these policies. That is why, in this report, to further advance understanding of relationship between fire hazard and climate change, for both academic and practitioner communities, we review emerging evidence showing that policies surrounding tree planting are increasingly important for fire hazard insurance. We outline the dynamic relationships between climate change, tree planting policies and initiatives, and wildfire risk as illustrated in Figure 1, and illustrate their importance for insurers. Furthermore, we discuss relevant risk factors and potential mechanisms when accounting for these policies. Figure 1 CLIMATE CHANGE, POLICY, AND WILDFIRE Arrows denote relevant relationships addressed in the report. Afforestation is defined as planting trees in a previously unforested area. CC stands for Climate Change. (Images from Pixabay- no attribution required.) Copyright © 2021 Society of Actuaries 6 1.1 MOTIVATING EXAMPLES To this day, the 2016 fire in Fort McMurray, Alberta, Canada remains a stark illustration of the unintended consequences of planting new forests. The fire resulted in the costliest disaster in Canadian history, totaling CAD $3.7 billion in insurance losses (Statistics Canada, 2015). In its wake, 5,890 square kilometers (3,660 square miles) of land were burned. While there were no deaths, 8% of the town’s private dwellings were destroyed (Statistics Canada, 2015). After the event, Wilkinson, et al. (2018) pinpointed the source of the fire on groups of trees planted by the Canadian government back in the 1980s. Regretfully in hindsight, the trees were planted in peatland, a type of wetland area that typically has very low fire risk. However, the trees dried up the peat, sending the water-table deeper underground. Thus, humans grew a dry, highly flammable forest in place of the once fire-resistant, natural peat moss. Once sparked, the resulting wildfire was catastrophic, burning both the newly planted trees and the original peat, releasing carbon that had been stored for thousands of years and taking almost five hundred days to fully extinguish (Elbein 2019). In Europe, the Iberian Peninsula has also witnessed undesirable effects of tree planting on wildfire disasters. Over the last century, large scale reforestation and afforestation policies arose to combat the erosion and flooding that had occurred with historical deforestation (Jones, et al., 2011; Vadell, et al., 2016). While these policies provided highly desired economic opportunities through the timber industry and aimed to improve the landscape, many stands were nonnative monocultures, such as Eucalyptus. These species were highly fire prone (Gómez-González et al, 2018). The resulting land conversion resulted in a staggering increase of area burned by wildfire in subsequent
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