Newsom, a Democrat, has made addressing climate change a key part of his administration’s goals. Last month, he announced a target to ban new gas-fueled cars by 2035, a first among states, in a bid to mitigate carbon emissions, as well as a pledge to conserve 30% of state land and coastal water. Yet these long-term initiatives face uncertainty and difficulties in implementation.
The mandate on cars is “unlikely to address near-term issues such as wildfire management, climate preparedness, and electric power grid reliability,” said Andrew Teras, senior analyst at Breckinridge Capital Advisors. The state needs “more immediate and proactive solutions.”
California is spending about $205 million in fire prevention and management programs this fiscal year, down from $354 million in the prior year. The decline was driven by the budget gap and inability of the administration and legislature to an agreement on how to spend cap-and-trade dollars, which boosted the funding last year, said H.D. Palmer, a spokesperson for Newsom’s finance department. He said this year’s spending levels show that it’s a priority given that other budget items were cut significantly.
The $1.1 billion in emergency spending by the California Department of Forestry and Fire Protection this fiscal year marks the first time that those costs have topped $1 billion. It’s more than triple the original budget allocation of $372.7 million, and is projected to grow to $1.3 billion, the department, known as Cal Fire, wrote in a letter to legislators this week.
Barring significant action, California’s fire trends are only expected to intensify. About 69% of the state’s economic output was exposed to fire risk in 2018, and that’s estimated to rise to 71% over the next two decades, according to the Federal Reserve Bank of San Francisco.
So far, the state has boosted homeowner protections in insurance policies and emergency response plans for counties. Legislators last year established a $21 billion fund to help utilities such as PG&E and Edison International cover future liabilities when their equipment ignites disastrous blazes, a move that shored up market confidence.
But that fund is likely to run out of money sooner than expected given “the lack of sufficient rainfall, the dry environment, and the apparent ease that relatively routine wildfires can develop into catastrophic wildfires,” S&P said last month.
Meanwhile, investors are assessing whether to buy securities sold by communities most at risk from climate change, which could lead to higher borrowing costs for them or even loss of access to the market. Bond giant Pacific Investment Management Co. demands greater compensation to hold such debt, said Sean McCarthy, head of municipal credit research.
“It’s impossible to deny that these risks are not here now,” McCarthy said. “We’re going to see the collision of climate change with the recession.”
--With assistance from David R. Baker.
This article was provided by Bloomberg News.