Skip to main content

The Globe and Mail

Businesses grapple with growing risks from wildfires

This file photo taken on May 7, 2016 shows flames and smoke rising off Highway 63 outside Fort McMurray, Canada.

COLE BURSTON//AFP/Getty Images

Alberta-Pacific Forest Industries Inc.'s timber rights through a large swath of northeastern Alberta are being ravaged by fire, and the size and intensity of this spring's blaze comes as no surprise to its woodlands manger, Cal Dakin.

The combined impact of drought, climate change and modern forest-management practices has left the western boreal forest extremely vulnerable to the type of massive fire that forced the recent evacuation of Fort McMurray and the temporary halt to oil sands operations in the area.

Wildfires will strike with increased severity and volatility in the coming decades, according to forecasts from government and scientists – and industries such as forestry, oil and gas extraction, and insurance are all wrestling with how to manage this risk. Governments will also need to reconsider their mitigation efforts and how to pay for recovery when disaster strikes.

Story continues below advertisement

That starts with Fort McMurray, which is poised to become the most expensive natural disaster in Canadian history. Insured losses from damaged property could reach $6-billion by some early estimates; the oil companies' foregone revenue is approaching $1-billion, according to Jackie Forrest, economist at ARC Financial Corp.

The value of lost forest is incalculable, including not only prized timber but recreational areas, important ecosystems for wildlife – including threatened species, such as woodland caribou – and environmental benefits.

Alberta-Pacific's management areas cover a tenth of the province's vast area, but the Fort McMurray inferno has torched one-thirtieth of that timber. That will force the company to reduce its allowable cut for this year. And it's still early in the season, with fires still raging.

A combination of factors are to blame. A warming trend has left forests drier and more susceptible to pests, such as the spruce budworm, and current forestry practices and the successful suppression of smaller fires have left plenty of dead, dry plant material that can fuel a blaze beyond control.

"When the forest is at this level of drought conditions, there is very little you can do. Until you get rain, there is nothing that can stop [the fires] … So the landscape's susceptibility to fire is very much increasing," Mr. Dakin, the Alberta-Pacific woodlands manger, said in a phone interview from the company's office near Boyle, Alta.

Global reinsurance companies, which fund the outsized losses of local insurance providers, have been using meteorological models to track Canadian wildfires and have noted the same growing risk.

"There is a slight trend in the frequency and severity of fires as we see them in the last 10 to 15 years," said Philipp Wassenberg, chief executive of Munich Reinsurance Company of Canada, part of one of the world's largest reinsurers. But that change is becoming more prominent. "We've come to the belief over the last few years that [climate change] is driving an exponentiality of the curve, rather than a linear trend only."

Story continues below advertisement

Natural Resources Canada has modelled the impact of climate change on the country's forests. It projects fire seasons will become longer across the country as temperatures climb, while the Prairie provinces – which are already prone to drought – will become drier. If global emissions are not aggressively curtailed, the forest conditions will change dramatically over the course of the century, government scientists forecast.

To manage losses stemming from increasingly frequent and severe catastrophic natural disasters, insurance companies in Canada have taken steps such as renegotiating their contracts with reinsurers, increasing premiums and even creating insurance products such as extended flood coverage.

Then there's the cost of businesses being interrupted, even if they're not damaged by fire. Oil sands companies were forced on Monday and Tuesday to evacuate several work camps north of Fort McMurray, where they were housing crews who were restarting operations following the shutdown that began two weeks ago and took off-line 1.2-million barrels a day of production. Small local businesses will likely be the last to be rebuilt in the area, since customers won't return until communities can be re-established.

During his visit to Fort McMurray last week, Prime Minister Justin Trudeau said federal and provincial governments need to manage the current fire crisis but also work to minimize "the impacts of the next one, because it will come."

The private sector has some suggestions for programs that would mitigate disaster costs both to municipalities and to the insurance industry. Mr. Dakin said provincial governments need to change their timber-management regulations to encourage companies to pursue a "natural disturbance" model that imitates the impact of fire on a landscape.

The cross-Canada trend of rural populations sprawling closer to forests is also causing problems. Fire officials cannot let smaller blazes burn, though that technique is effective in inhibiting out-of-control fires such as the one that damaged Fort McMurray. Municipalities may have to take the unpopular step of clearing forests from around the edges of their cities and towns.

Story continues below advertisement

"One other thing [the government] could do is change the building codes. The building codes are [decided] on a municipal level in most provinces," Mr. Wassenberg said. Such changes could include sheathing walls with concrete or brick and adding fireproof shingles. "That's a significant effect at almost no price."

Destruction from wildfires often goes beyond what's visible to the eye. "There are huge amounts of caustic ashes and toxic heavy metals that are on the ground because a wildfire burns down a house at more than 1,000 degrees," he said. That has both human health and financial costs. "Rebuilding a city requires extensive decontamination efforts, then home rebuilding, and then businesses come back."

The country's timber supply is expected to suffer through changes in pests, fires and forest growth. By the decade of 2050, these factors could cost the economy as much as $17-billion per year, according to a 2011 report by the National Round Table on the Environment and the Economy, a former Canadian government-backed organization. The analysis notes that construction and manufacturing industries will also be affected.

Report an error Licensing Options
About the Authors
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

Financial Services Reporter

Jacqueline Nelson is a financial services reporter at the Report on Business. Prior to that she was a staff writer at Canadian Business magazine, covering news and writing features on a wide variety of subjects. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.