Opinion: California’s Wildfires Burn Our Climate Illusions

By Liam Denning | March 4, 2019

Joan Didion’s “Holy Water,” written in 1977, is a paean to the elaborate engineering that supplied her taps in Malibu and filled drinking glasses in Hollywood restaurants. At its heart is a warning:

The apparent ease of California life is an illusion, and those who believe the illusion real live here in only the most temporary way.

The Golden State is actually a pretty inhospitable place: arid or semi-arid in large parts, prone to occasional floods (maybe even mega-floods) and, lest we forget, a giant quake-zone. There’s even a clutch of volcanoes. As a prosperous home for almost 40 million people, it is a place made, not begotten. Roughly a decade after Didion’s essay, Marc Reisner characterized California as “a beautiful fraud” in his much longer polemic “Cadillac Desert,” chronicling in exquisite detail the epic water projects, bottomless budgets and Chinatown politics that went into making a place like Los Angeles not merely viable but desirable.

In 2019, another element consumes the state’s attention. After the terror of two wildfire seasons for the ages, the state’s largest utility, PG&E Corp., has declared bankruptcy in the face of potentially huge fire-related liabilities. On Thursday, it announced it was taking a $10.5 billion charge in connection with last year’s Camp Fire, California’s most destructive to date. Banal as it may seem, the utility’s credit rating plunging from untouchable to unownable within a matter of months illustrates perfectly how climate change shatters collective illusions – illusions that extend far beyond California’s borders.

The bankruptcy also elevates a critical, related question: Who pays for what?

Whether it’s irrigating the San Joaquin Valley or stringing thousands of miles of wiring across the state, the funding of California’s grands projects has long been a contentious, and often poorly understood, issue. Douglas Bosco, a former member of Congress who now chairs the state’s Coastal Conservancy, says there’s “overall a complete misunderstanding” as to how the state’s energy is sourced and paid for. He recalls a public meeting in Crescent City back in 1979, appearing alongside Claire Dedrick, the first woman to serve on the California Public Utilities Commission. Bosco recalls Dedrick explaining how the CPUC protected consumers while also ensuring investors in the regulated utilities got a healthy rate of return. Upon which, he says, a farmer stood up and asked: “Ms Dedrick, how do I get regulated by the PUC?”

That tension between customers and financiers, between serving the public good and sating commercial appetite, is common to investor-owned utilities but has reached a breaking point with PG&E. And yet California must balance making shareholders and creditors shoulder their share of the liabilities with the need to ensure that a functioning, financially viable grid emerges at the end of bankruptcy.

Because, daunting as the wildfire costs are to date, it’s more useful to think of them less as a bill to be settled and more like an ongoing tab. Unlike earthquakes, climate change isn’t a random act of God. With a hefty assist from man, it is taking familiar threats such as drought, flood and fire and supercharging them to reach an unfamiliar ferocity and frequency. In the state’s most recent assessment, the average area burned by wildfires is projected to increase by 77 percent by the end of the century in a scenario of high greenhouse-gas emissions. Even with more moderate emissions, there is a significant increase, and a Californian born today will almost certainly live to see it.

There will be more costs: for fire-fighting; better forestry management; claims from future victims; refitting the power grid; rebuilding homes; fireproofing structures of all kinds; higher insurance premiums. California’s clean-energy targets, a vital long-term insurance policy against climate change, must also be paid for.

California’s application of inverse condemnation principles has socialized some of these costs in the past via utility bills – not unnoticeable exactly, but less in your face. Yet these costs are now expanding to such a scale, and likely level of repetition, that this approach hardly seems tenable. Electricity bills are already a burden for California’s less-wealthy households (see this), and capital markets won’t finance a utility with open-ended exposure to mega-fires.

This is just one circle California has to square. The wildfires have exposed other mismatched risks and unmet costs, including those related to the most fundamental of issues: where people live.

Susan Gorin is a Sonoma County supervisor who lost her home in the Tubbs Fire that swept into Santa Rosa in October 2017. Speaking with her recently after a community meeting on fire safety, she said:

We’re approaching years of reckoning, because we’ve pretty much given private-property owners the ability to build a house or a ranch just about anywhere that they own land. And yet the assumption for those private-property owners is that we will have the public fire resources to protect them in case of emergencies and wildfires. Property owners can’t make that assumption any longer. And our fire was a case in point … The fire came so hard, so fast, that no fire agency or agencies could have saved homes.

A growing number of Californians, as elsewhere in the U.S., live in the “wildland-urban interface,” or WUI. For some, this is their prized piece of the “illusion.” But it isn’t necessarily an aesthetic choice; California’s shortage of affordable housing is a centrifugal force that pushes those less well-off into more marginal spaces.

Yet even if land and houses are cheaper in some places, that isn’t necessarily the same as the all-in cost of living there; something only revealed when disaster strikes.

Douglas Houston is Chancellor of the Yuba Community College District and has lived close to the town of Paradise in Butte County for more than 20 years. He and his wife managed to save their home from November’s Camp Fire, which all but destroyed the town. Tested by the Humboldt fire a decade before, they had done their research and assembled a formidable range of equipment in preparation for the next one, including a tractor, generator, fire-fighting pump, and even his ‘n’ hers chainsaws (a reasonable Valentine’s Day gift in these parts, apparently). The account of how they fought off last November’s fire, its progress toward them punctuated by the sound of neighbors’ propane tanks exploding in the heat, would make for a compelling Netflix pilot.

One aspect that struck me was the sheer investment of time, effort and money they put into making their home resilient. Besides the years spent clearing brush on the acres around them – including a large plot purchased in part to reduce their risk – Houston’s back-of-the-envelope estimate for the cost of their equipment alone was north of $20,000. Money well spent, of course, but also an indication of what it can take to really secure one’s place in the WUI.

For those unlucky enough to lose everything, the fires exposed another gap in risks and capabilities: insurance. A survey of households caught up in the northern California wildfires of 2017 discovered two-thirds of them were under-insured. This doesn’t necessarily reflect a conscious choice; rising costs mean even good policies won’t necessarily make you whole, especially when wildfire makes construction crews a hot commodity. Gorin, for example, says her “pretty typical” policy covers less than a third of what it would take to restore her home as it was.

Not all costs are monetary. One energetic debate in California concerns “de-energizing,” or what amounts to a managed, temporary blackout of certain areas when the chances are high of a power line coming down and starting a fire. This has the advantage of mitigating the risk quickly but is also a blunt tool, putting the onus on homeowners in high-risk areas to buy back-up generators or sit in the dark. William Abrams, a community advocate who in 2017 fled with his family after waking up to find their home just north of Santa Rosa was already on fire, pushed back on the idea at a recent meeting of the CPUC: “Through this de-energization practice, they [PG&E] are passing the responsibility to provide safe and efficient power onto the homeowners.”

Deploying distributed energy resources, such as solar panels and storage, to vulnerable communities could help address this. This was suggested in a recent Los Angeles Times op-ed penned by Michael Wara, a research fellow at Stanford Law School appointed in January to Governor Gavin Newsom’s wildfire-recovery commission.

Such a plan wouldn’t come cheap, though: Wara’s rough calculation for individualized backup power at a million high-risk homes was about $30 billion. On the other hand, that’s about the same as the upper end of estimates for the claims arising from just two wildfire seasons. And that’s before getting into other, less visible costs. For example, the state recently passed a measure to cover the real-estate tax revenue shortfall hitting Butte County’s finances for three years, a commitment in terms of time that deputy chief administrative officer Meegan Jessee says she hasn’t seen before with similar measures. Moreover, as Wara wrote, the state needn’t just cut a check for a backup power program; providing low-cost loans might be enough.

There’s that question again, though: Who pays for what? And added to that: How? For some, the price may be paid not merely in higher power bills or insurance premiums, but in less-reliable energy supply or simply not returning to the places they once called home. Laura Friedman, a California assembly member who just took over chairing the Committee on Natural Resources, wants to foster serious discussions on everything from PG&E’s structure to incentivizing home-hardening. If those aren’t thorny enough, she says climate change may also mean discussing some vulnerable communities “staging a managed retreat.”

As climate change simultaneously reveals and raises the cost of maintaining California’s way of life, there is a risk of division. “Climate-change gentrification” has entered the lexicon to describe a scenario where only those who can afford to self-insure or build their own microgrid get to live in California’s most Instagrammable, and potentially flammable, spots.

Even seemingly technical or commercial ideas like San Francisco taking over its own bit of PG&E’s grid – something the city is considering – are fraught with the politics of inequality. What happens to the bill-payers in the riskier, and less wealthy, bits of PG&E’s territory if San Francisco withdraws even further into its bubble? Utilities as we know them are designed to spread the (sometimes very uneven) costs of providing a universal service. On that point, whatever your opinion of the Green New Deal, linking the fight against climate change with wider equity concerns is more than a gimmick.

Just as focusing narrowly on PG&E’s fate obscures California’s bigger, more complex challenge, so it would be a mistake to think that challenge is confined to California.

From Houston to Miami to New York City neighborhoods, communities far from the West Coast have transformed sometimes marginal places into homes, offices, parks, roads, grids, tunnels, malls, restaurants, schools and all the rest of our built environment. Much of it wasn’t constructed to withstand what climate change can throw at it, ultimately reminding those communities of their marginal origins.

We have a hard time grasping such risks, let alone paying to prepare for them. It’s not hard to see why: Spending money to head off something bad that might happen in the future is the polar opposite of instant gratification. Less than one in seven California households have earthquake insurance despite, well, the obvious. But under-insurance may well be a national epidemic. “Over half this country is under-insured, and there’s a lot of data to suggest roughly 80 percent of the country is under-insured,” says Kenneth Klein, a professor at California Western School of Law in San Diego, whose in-depth study of the issue is due to publish soon in the Connecticut Insurance Law Journal.

As a society, we under-price the risk of climate change most egregiously by not putting a direct cost on its primary cause, carbon emissions. The idea that this is unaffordable but that we’ll somehow just absorb the cost of climate change ex-post, in all its forms, requires some serious doublethink. The same politicians who decry carbon taxes as government overreach are indulging implicitly in socialism of their own, leaving privatized profits untouched but letting society as a whole pick up the tab for the waste. Who pays for what, indeed.

In all sorts of ways, from the power grids to the freeways to the levees and to the cats-cradle of tolls, taxes, fees, bills, subsidies, and legislation underpinning it all, America writ large is a stunning, highly-engineered “illusion.” Assuming it can endure a systemic hazard like climate change without a serious, collective effort to address that is where things tip into delusion.

Coincidentally, this is the same year Joan Didion’s collection, The White Album, including “Holy Water”, was published.

The state’s projections shown in the animation are for two so-called Representative Concentration Pathways assuming moderate population growth. RCP is defined in terms of the net balance of radiation into and out of Earth’s surface due to human emissions of greenhouse gases. The 8.5 RCP represents a business-as-usual scenario resulting in carbon dioxide concentrations in the atmosphere more than doubling by 2100. The 4.5 RCP is a more moderate scenario, albeit with concentrations still rising by almost 40 percent.

Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.

About Liam Denning

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

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