The globe is warming, ice caps are melting, and sea levels are creeping up. The most convincing evidence to an economist, however, is not measurement with thermometers or yardsticks but the fact that people are reacting to price changes, whether the result of government policies or the result of asset markets. Market forces are causing human beings to adapt to climate change, and that movement is the theme of a new book, Adapt and Be Adept.
Adaptation occurs in part because other policies aimed at slowing global warming show little prospect of being implemented or, if implemented, of having much effect.
First, the most common policy proposed for reducing global warming is regulation to reduce greenhouse gas (GHG) emissions. These regulations are the basis for most international agreements, such as the Paris Accord. Not surprising, not all countries sign on to such agreements, and not all that do abide by them, especially those wanting more development, such as China and India. Moreover, because so much carbon is already stored in the atmosphere, these agreements are unlikely to have much effect on global temperatures. In the case of the Paris Accord, even if all countries met the targets, projected temperatures by 2100 would be reduced by only 0.05 degrees Celsius, as Bjorn Lomborg showed in Global Policy in 2015.
Second, the alternative energy forms necessary to drive the global economy have inherent limits that, for the foreseeable future, will make a transition that eliminates hydrocarbons unlikely. Hydrocarbons are here to stay as a major share of the global energy supply, and therefore far more severe greenhouse gas regulations are unlikely to gain traction.
Third, and perhaps most important, politics, more than efficiency, drive climate policy. As Jeffrey Immelt said in answer to a question I posed at the 2008 ECO-nomics Conference sponsored by the Wall Street Journal, “If you’re not at the table, you’re on the menu.” Being at the table means having lobbyists who influence policy. This is why climate change policies promoted by economists as efficient are seldom adopted. Special interest groups seek subsidies, taxes, or regulations that make their products or services more profitable than they would be otherwise. Economists refer to this as rent seeking, meaning that political outcomes have little resemblance to theoretical efficiency depicted in economic models.
Most current policies proposed for reducing global warming or mitigating its effects require collective action. International agreements to reduce greenhouse emissions require global agreements that are difficult to enforce, even if agreed to. National and regional greenhouse gas reduction is easier to enforce but has little hope of reducing global warming because the GHG emissions immediately mix in the global atmosphere; any effect they have cannot be separated from other GHG emissions. Hence, local economies bear costs with few identifiable benefits locally or globally. Moreover, greenhouse gas limits placed on a local economy most often result in “leakage,” meaning emissions are shifted to economies without such regulations …
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Adapt And Be Adept