The human ingenuity that free markets drive will effectively help us adapt to climate change, said Matthew Khan. He describes further in his newly published book, “Adapting to Climate Change: Markets and the Management of an Uncertain Future.”
Khan is Provost Professor of Economics and Spatial Sciences in the Department of Economics at the USC Dornsife College of Letters, Arts and Sciences. In his interview with Ignon, Khan gave insights from his book, now named the top 10 books in business and economics for Spring 2021 by Publishers Weekly.
He believes that human behaviour and choices in response to climate change can transform the larger economy. Climate change will influence our choices of where we live, how our food is grown, where to invest our money, or where we will locate new businesses.
He says human ingenuity will play a central role in devising solutions to any challenges that materialize, citing COVID-19 vaccines as an example.
But there are also limits to adaptation, according to Khan. He strongly supports the carbon tax that increases over time but has reservations about whether “a credible binding treaty will be signed”. However, he believes that GHG emissions will continue to grow, and therefore human beings will need to adapt.
The anticipation of mass misery due to climate change will serve as a catalyst and opportunity for entrepreneurs and leaders to develop solutions to improve the quality of life.
When we perceive climate risk rather than be naïve or ignore it, it can help accelerate our adaptation. Universities can play a role in expanding our knowledge of these risks and also help us grow our coping strategies.
For instance, human beings are not passive victims of events. We have the incentives to build resilience against stronger hurricanes and other natural events with the help of breakthroughs in engineering and technology.
Extremes events like droughts, heatwaves, and fire threats signal scarcity and affect pricing, prompting behavioural changes. For example, this can increase water prices in drought-prone areas, forcing people to conserve and value water. In areas that experience frequent flooding, this can increase insurance costs in some areas and trigger government interventions.
As risk mapping is getting more refined, this presents an opportunity for governments to change the zoning codes. For instance, allocating safer zones can allow residential developments or, in some flood-prone areas, can allow the construction of taller buildings.
But when it comes to climate change vulnerability, the poor remain in the front lines. For governments, this can be a catalyst to create enabling environments for the poor to reach their full potentials, thereby giving them the capacity to adapt—for instance, providing air conditioning to classrooms to improve productivity and learning.
In conclusion, Kahn states that free-market environmentalism is not a contradiction. The Property and Environment Research Center (PERC) defines free-market environmentalism as an approach to environmental problems that focuses on improving environmental quality using property rights and markets (Free Market, 2022).
Kahn, Matthew. (2021, March 30). Adapting to Climate Change: Markets and the Management of an Uncertain Future. https://yalebooks.yale.edu/book/9780300246711/adapting-climate-change
Ignon, L. (2022, February 7). Economist Matthew Kahn says human ingenuity is key to living with climate. USC Dornsife. Retrieved from https://dornsife.usc.edu/news/stories/3624/economic-answers-to-climate-change/
Free Market Environmentalism. (2022). PERC. Retrieved from https://www.perc.org/free-market-environmentalism/