14 Jul 2009, 2:02pm
Forestry education
by admin

Cost-Plus-Loss Is the Correct Way to Evaluate the Economics of Fire

The standard way the government accounts for fire costs is to look at direct suppression costs only. That is overly simplistic to the point of fiduciary incompetence.

Fires cause lasting damages to a variety of natural and human-built resources. Those damages, also called losses, are vital elements that must be considered when accounting for the total costs of fire. The econometric term is cost-plus-loss, and we have discussed the concept many times before [here, here, here, here, here, for a small sampling].

We have estimated that cost-plus-loss can range from 10 to 40 times the suppression expenses. Now a study from San Diego State University of the Cedar Complex Fires of 2003 finds the cost-plus-loss of those fires to be 50 times suppression expenses, at least. From the LaLa Times:

San Diego County’s 2003 wildfire losses top $2 billion

by Bettina Boxall, LA Times, July 13, 2009 [here]

How much did the Southern California fire storms of 2003 really cost?

Matt Rahn, a research director at San Diego State University, delved into the losses and concluded that the final bill in San Diego County alone was $2.4 billion.

“What astounded us most was the total economic loss,” Rahn said.

The expense of fighting the wildfires turned out to be less than 2% of the total. Restoring burned watersheds cost more than the firefight, according to Rahn’s tally.

San Diego Gas and Electric spent $71 million replacing thousands of charred power poles, transformers and hundreds of miles of wire. The state reimbursed the utility for more than half that.

Businesses shut down for days during the fire siege.

The fire blackened 375,917 acres, destroyed 3,241 homes and killed 16 people in the county. (All told, the 14 wildfires that raged across Southern California in late October charred 750,000 acres, burned down 3,710 homes and killed 24 people.)

Airline flights were canceled because the skies were thick with smoke. A high-tech manufacturer had to replace all the air filters in its plant. The insurance industry paid an estimated $1.1 billion in property claims.

It cost Caltrans $15 million to fix fire-damaged highways in the county.

Rahn said the figures underscore the importance of maintaining firefighting forces to control blazes in their early stages, before they become an unstoppable force of nature.

“Pay now or pay a whole lot later,” he said. “We’re in an economic crisis in California, and we’re talking about reducing firefighting levels. Cutting them in the short term may actually wind up with a longer-term impact.” …

Dr. Rahn’s findings reinforce earlier findings (see the links above). The subject is not particularly new to forestry — cost-plus-loss studies have been undertaken since the 1920’s — but the findings of the last 90 years or so have not been well-understood by the public at large.

Cost-plus-loss is the logical way to account for fire costs and to evaluate the economic utility of fire suppression. We invest in fire suppression to prevent losses and damages. That is, the “utility” of firefighting is a function of the losses prevented.

A new and comprehensive study of cost-plus-loss accounting methodology is due to be published soon. Modesty and propriety prevent me from discussing the particulars now, but very soon we will be allowed to trumpet those findings here at SOS Forests.



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