Pricing Climate Risks: Evidence from Wildfires and Municipal Bonds

Woongchan Jeon, Lint Barrage and Kieran James Walsh
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Woongchan Jeon: ETH Zurich
Lint Barrage: ETH Zurich
Kieran James Walsh: ETH Zurich

No 26/405, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: How are public finances affected by climate-driven wildfire risk changes? Using high resolution meteorological forecasts, land use data, and US municipal bond spreads, we find that municipalities facing greater future wildfire exposure already incur higher borrowing costs: A one standard deviation increase in future wildfire risk is associated with a 7 (8) basis point rise in primary (secondary) market spreads - over 15% of the sample mean. Impacts appear larger in areas with higher minority populations and greater reliance on local revenue. Our study contributes to the broader literature by introducing a new approach to evaluating the capitalization of evolving physical climate risks.

Keywords: Wildfires; Climate Risk; Municipal Bond; Fiscal Costs of Climate Change (search for similar items in EconPapers)
JEL-codes: G12 H74 Q54 (search for similar items in EconPapers)
Pages: 94 pages
Date: 2026-06
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