Even by recent standards of devastation from climate change, December’s wildfires in Boulder County, Colorado were particularly haunting. In just a few hours — minutes in some cases — fires engulfed entire homes and then entire neighborhoods. Families had little time to gather their belongings, if they could return home at all. The fires caused at least $513 million in damage and destroyed 1,100 buildings. Many households can be underinsured or unable to recoup their losses.
Described as a “urban firestorm” According to scientists, the Colorado wildfires were remarkable not only for their unprecedented ferocity, but also for their location along the Wildland City Interface (WUI) where cities like Boulder are located. This fragile WUI has been in development for decades as developers, policymakers, and other leaders in the Denver area have demanded and invested in widespread growth. As just an examplein nearby Jefferson County, every 1,000 new residents has resulted in the loss of 470 acres of natural land in recent years.
The location and design of our built environment—often single-family homes, shopping malls, and others Low density development spread along the outskirts – setting the stage for all this destruction. America can only adjust to climate reality if we start rethinking where we invest and what we build. And we cannot change where and what we build without rethinking how private capital markets and public investment work together.
Urban climate vulnerabilities are not limited to Colorado or wildfires. Basement residents in Queens, New York, were killed Hurricane Ida due to the lack of safe, affordable housing in the city. Thousands of homes faced destruction Houston during Hurricane Harvey because insurance markets and government planning permitted construction in flood plains. Even daily temperature fluctuations cause thousands of Americans to suffer Cities that radiate warmth due to the lack of urban green spaces.
These climate tragedies are the direct result of how we plan and build communities. Federal, state, and local governments continue to build freeways, lengthen water lines, and construct new infrastructure to meet the near-term demands of suburban growth. These infrastructure expansions typically rely on traditional designs and technologies that pave land, deplete natural resources, and create more pollution. Public funding at all levels will continue Subsidize and encourage this activitywhile land use plans, capital budgets and other policies struggle to accommodate and address evolving climate demands.
Meanwhile, real estate developers, lenders, investors and insurers continue to bet on risky growth in areas vulnerable to climate hazards. Developers and home builders have little incentive to consider climate risks in new projects. Real estate owners, including homeowners and institutional landlords, lack information about location-specific real estate risks. Because most real estate is acquired with a mix of debt and equity, no single company bears the full financial risk of climate risk. Banks, financial intermediaries and federal supervisory authorities do not transparently measure, assess or consider climate risks in underwriting decisions. Insurers may have property-specific climate risk data, but do not share the information publicly and make no effort to keep up with claims evolution in real time.
Together, public and private leaders often fail to recognize:and price—Climate risks in our transportation, water and real estate assets while failing to protect communities from harm.
Imagine if we could price these climate risks better. Measurement and adaptation to a more extreme climate – by more accurate regional data, forward-looking capital plansand new green infrastructure Designs such as green buffers and green roofs – not only has the potential to reduce future costs, but can also lead to environmental and economic benefits, including increased resource efficiency, higher property values, and additional opportunities for people and business development.
For example, the Massachusetts Bay Transportation Authority (MBTA) spent $370 million in 2017 sustainability bonds to fund a variety of station improvements, flood control, and other upgrades to the Boston transit system. Even better, investors were excited about the benefits and gave MBTA better terms on their debt.
Instead of investing in the same fragile, sprawling projects, we need new approaches that produce more examples like the MBTA experience. We need financial markets to increase the resilience of cities or the ability of the built environment to be more flexible and responsive to climate impacts. More funding for overall climate improvements would help, but national public and private leaders need a rethink how we invest, not easy how much invest.
The capital markets are America’s best way to get the investment volume the country needs. But these markets need incentives to provide greater resilience. New Brookings Research highlights how such an approach could work through a new climate finance framework – a set of policies and programs that direct more public and private capital towards resilient infrastructure improvement. We know that private money will always chase profits, so these rules should encourage the market to invest in safe locations with durable designs.
This means the insurance industry should offer homeowners and the private sector more realistic scenarios before deciding where to invest in real estate. Water utilities and other local governments should have their credit ratings downgraded if they invest in locations prone to drought-like conditions.
It should be expensive to build wrong. All too often, however, it is the opposite.
The consequences of our current flawed approach are all of the displaced people from Colorado who are now looking for new homes and enduring insurance policies that don’t cover all of their losses. You won’t be the last Americans to deal with this kind of avoidable tragedy. It is time to retool our financial markets for climate catastrophe and make resilient places profitable for both people and planet.