This summer, Americans hundreds of miles from any flame have again looked through a smoky haze produced by wildfires in Canada. The smoke crossed the border without a passport, settled over cities in the Midwest and East, and turned an environmental crisis in one country into a public health problem in another. The damage is not limited to an unpleasant smell or reduced visibility. Wildfire smoke contains fine particulate matter, known as PM2.5, that can penetrate deep into the lungs and aggravate cardiovascular and respiratory illness.
The Canadian fires of 2023 give some indication of the scale of the consequences. Smoke from those fires affected most of the contiguous United States between late April and early August. The Centers for Disease Control and Prevention reported that asthma-related emergency-department visits were 17 percent higher than expected during the 19 days when smoke pushed air quality into unhealthy ranges. A 2025 study in the journal Nature, using atmospheric and epidemiological models, estimated that chronic exposure to smoke from the 2023 Canadian fires was associated with 33,000 premature deaths in the United States.
The fires provide an unusually concrete example of a problem that environmental economists call an externality. Investments and other decisions in one jurisdiction impose costs on people elsewhere. (Smoke from fires in the United States can also move north into Canada.) But assigning blame is less useful than recognizing that the atmosphere is shared and that no country can protect its citizens entirely by acting alone.
The same lesson is being written across Europe this summer. Wildfires in France and Spain have forced the evacuations of more than 300,000 people.
Growing up in northeastern Pennsylvania, I saw the environmental damage caused by the coal industry. In the early 1960s, we used to joke that if Soviet bombers ever flew overhead, they would see all the open-pit mines and assume the place had already been attacked.
These open-pit mines were not simply eyesores. Abandoned coal mines leave behind acid mine drainage, Pennsylvania’s largest source of water pollution. When water fills the exposed and abandoned pits, it reacts with sulfide minerals like pyrite (“fool’s gold”). This creates highly acidic water that dissolves heavy metals—like iron, aluminum and manganese—leaching them directly into groundwater and turning local streams bright orange.
As a result of this damage, most people in the former coal regions, like most in underdeveloped nations, avoid drinking tap water. They instead drink bottled water, which of course produces more plastic products in need of recycling.
Our joke about the Soviet bombers was dark, but its point was clear: Economic activity can generate benefits in the present while leaving both economic and health-related damages that last for generations.
This summer’s wildfires raise new questions about both the environment of economics and the economics of the environment.
Discounting the future
A central assumption in what is called dynamic economic analysis is time preference. Individuals, firms and governments generally value benefits received soon more highly than benefits expected to be received far in the future. Economists express this through a method called discounting.
Using a discount rate is indispensable for ordinary investment decisions, but it becomes morally and analytically difficult when applied to environmental questions. Discounting can make benefits arriving 50 or 100 years from now appear almost worthless today. Yet the people who will live then are not less human because they are not yet born. What right do we have to treat their access to clean air, clean water and a stable climate as a negligible item in a present-value calculation?
It would be neither practical nor desirable to abandon discounting in all investment decisions, since doing so could imply that almost any project offering benefits in the distant future warrants unlimited expenditure today. A more balanced approach is to distinguish between private financial returns and the broader social returns generated by projects that protect future generations. Governments can apply lower discount rates to long-term environmental investments while also assigning positive economic values to the prevention of illness, premature death and ecosystem degradation. At the same time, regulation and financial incentives through taxes and subsidized lending rates can help redirect private capital toward projects that generate substantial long-term social and environmental benefits.
The smoke drifting south from Canadian wildfires also exposes another problem: Environmental damage does not stop at national borders. Canada pays most of the cost of preventing and fighting the fires, but people in the United States also suffer from the resulting air pollution and health problems. Because Canada does not bear all the costs caused by the smoke, it may have less incentive to spend heavily on prevention. Cooperation between the two countries—including sharing information, responsibilities and costs—could lead to stronger efforts to prevent and control future fires.
The path to regional or global cooperation, of course, is easier to describe than to follow. Political leaders answer primarily to national voters, even when environmental damage crosses national borders. When such problems arise, it may be politically easier to blame another country than to negotiate with it over shared responsibilities and costs. President Trump, for example, has accused Canada of failing to manage its forests adequately and has threatened tariffs in response to wildfire smoke drifting into the United States. Although improved forest management could reduce fire risks in some areas, it cannot fully control fires across Canada’s vast and remote forests, especially as hotter and drier conditions increase their severity. The controversy illustrates how assigning blame can distract from the more difficult task of building lasting cooperation on fire prevention, emergency response, public health and climate change.
Cooperation trumps tariffs
When economists discuss policy goals, their instinct is to ask which instruments are best suited to achieve them. The Nobel laureate William Nordhaus praised Pope Francis’ encyclical “Laudato Si’” for its moral force but criticized the pope’s apparent reluctance to endorse market-based solutions, such as carbon taxes, to environmental problems. The difference in emphasis is revealing. Francis begins with the obligation to care for our common home; Mr. Nordhaus begins with the practical problem of changing behavior. But we need both perspectives. Moral conviction identifies the ends, and economic analysis helps select workable means.
President Trump has accused Canada of failing to manage its forests adequately and has threatened tariffs in response to the smoke drifting into the United States. Although improved forest management could reduce fire risks in some areas, it cannot fully control fires across Canada’s vast and remote forests, especially as hotter and drier conditions increase their severity. The controversy illustrates how assigning blame can distract from the more difficult task of building lasting cooperation on fire prevention, emergency response, public health and climate change.
Instead of punitive tariffs, the immediate response to the smoke from Canada, at the very least, should be a stronger North American compact for wildfire management. Canada and the United States already cooperate in emergencies, but cooperation should become more systematic: shared forecasting and satellite information, prearranged deployment of aircraft and firefighters, coordinated prescribed burning and forest restoration, common public-health warnings, and mutual assistance for communities exposed to smoke. Clean-air shelters and improved filtration in schools, hospitals, nursing homes and public buildings should be treated as basic resilience infrastructure, not improvised after each crisis.
Prevention also requires long-term green finance. Many worthwhile projects—forest thinning, restoration of wetlands and watersheds, modernization of electric grids, clean-energy infrastructure, and climate-resilient public buildings—require large investments now but generate their largest returns through damages avoided over several decades. Private investors, facing short horizons and uncertain future revenues, will often underfund them. Governments can bridge that gap through long-maturity green or resilience bonds, public loan guarantees, blended public-private financing, and revolving funds that reinvest savings from lower energy use or reduced disaster losses.
Green finance, however, must be more than a label attached to conventional borrowing. Projects should have measurable environmental objectives, transparent reporting and independent evaluation. A bond issued for wildfire resilience, for example, should specify the acreage restored, communities protected, filtration systems installed, or expected reduction in smoke exposure. Public guarantees should be targeted toward projects whose broad social benefits cannot be captured fully by private investors.
Nor are all the benefits confined to a distant future. Forest management can reduce near-term fire intensity. Cleaner electricity can improve present air quality. Retrofitting schools and hospitals can protect people during the next smoke episode. Green investment can create employment now while also lowering risks for future generations. The task of public policy is to connect those immediate benefits with the much larger, longer-term gains that markets tend to discount too heavily.
No single instrument will work everywhere. Carbon taxes may be effective where political institutions can sustain them; subsidies, emissions standards, public procurement or direct investment may work better elsewhere. Energy choices will also differ. France has relied heavily on nuclear power, accepting the challenge of waste storage in exchange for low-carbon electricity. Southern Spain has greater opportunities for solar power. Geography, technological capacity and national experience matter. The common requirement is that each country account honestly for the full social costs of its choices, including costs imposed beyond its borders.
Mr. Nordhaus calls his macroeconomic approach a dynamically integrated climate economy model, or DICE. Like any economic model, DICE simplifies the relationships among production, emissions, temperature and economic damage. Its assumptions have been challenged, and no single model can settle climate policy. But its value is that it forces us to make our assumptions visible. How much do we value future lives? How large might climate damages become? Which policies can reduce them, and at what cost? These are economic questions, but they are never merely economic.
The smoke from Canada makes the idea of a common home strikingly literal. The air over Toronto, Detroit, Chicago, New York and Boston is not divided neatly by national boundaries. Neither moral exhortation nor economic modeling is sufficient by itself. “Laudato Si’” reminds us that stewardship is an obligation owed to our neighbors and to generations yet unborn. DICE and related models force us to confront costs, tradeoffs, uncertainty and the design of policy.
The practical response is not to choose between moral responsibility and economic realism, but to join them together. Build cross-border institutions, invest in prevention and adaptation, finance projects over the long horizons their benefits require, and judge those projects by the human and environmental harms they avoid. Economics can help us choose the means. It cannot by itself determine the ends. Those require solidarity, responsibility and a renewed willingness to invest in a future whose inhabitants cannot yet vote, borrow or speak for themselves.
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