Q&A: Terry Anderson On Adapt And Be Adept: Market Responses To Climate Change

Thursday, April 22, 2021
Hoover Institution, Stanford University

By Jonathan Movroydis

In this conversation, John and Jean De Nault Senior Fellow Terry Anderson talks about Adapt and Be Adept (Hoover Institution Press, 2021), a volume he edited featuring the work of nine policy analysts who argue that markets should be at the heart of America’s response to climate change.

In this interview, Anderson describes how proposed collective action on the environment such as the Paris Accords, cap-and-trade, and carbon taxes are expensive, disproportionately impact poorer populations, and do little to mitigate the effects of climate change. Conversely, he argues that market processes, entrepreneurial activities, and industrial evolution enable firms and individuals to adapt to climate change, create widespread economic prosperity, and ultimately lead to a cleaner and healthier environment.

Why did you edit this volume about environmental policy?

We at Hoover are often accused of being “climate change deniers,” which is just a totally false charge. Not one fellow at Hoover argues that climate change isn’t occurring. Then the question became, if Hoover fellows aren’t deniers, then what do they have to say? Given that we are basically people who believe in a free society, it led me to say, “Let’s examine the potential for humans to adapt to climate change.” Adaptation is something the human race has been doing for thousands of years.

We also believe that markets can provide powerful solutions to problems. So, this led me to ask, “What kinds of incentives are there for people to actually deal with climate change?”

What is the biggest debate about climate change in today’s political discourse?

Anyone who has read the news since President Biden has been elected knows we are about to launch a very expensive campaign to fight climate change. It’s centered around the draconian fear that somehow climate change is going to destroy the whole world. However, the issue isn’t quite that ominous.

Visiting Fellow Bjorn Lomborg captures this debate quite well. Climate activists will argue that more people are dying per year because of a higher rate of hurricanes, floods, and droughts. If one looks at the data over the past decade, only 18,357 people have died on average each year from natural disasters. That is a large number, of course, but it’s still the lowest death count in the past century, and a 96 percent decline since the 1920s, even before you factor in population growth since that time.

Climate activists argue that if we don’t do something, people will die at COVID-19 levels. Even though the data refutes such claims, it is still pushed aside in the name of what I would call a “climate change religion.” Its creed holds that people are morally wrong if they don’t support top-down comprehensive climate change action.

What do proponents of a comprehensive climate change policy hope to accomplish in terms of measurable progress on the environment?

I don’t think they will accomplish anything. I don’t even know whether they hope to achieve anything other than force people to put wind turbines on their property and place solar panels on their roofs. For example, the Intergovernmental Panel on Climate Change, an authority on environmental issues, stated that if all the countries of the world reduced carbon emissions to goals of the Paris Climate Accord over the next century, global temperature would be reduced by less than 0.2 degrees Celsius. That is such a miniscule number and would only be achieved if we adopted all of the accord’s recommendations. It is very unlikely that Russia, China, India, and the developing world will meet these draconian reductions. If the United States adopts these policies, we would only be shooting ourselves in the foot.

Would national and local climate change policies be more effective?

I will start at the very local level. I live in Bozeman, Montana, a town of about 50,000 people. We have a climate panel that speaks to the city council, and we are about to adopt a huge climate change policy. I call it “huge” because it calls for the city to reduce carbon emissions by 26 percent by 2026 and become carbon neutral by 2050. If we installed windmills and solar power throughout the entire city, it would make no difference whatsoever in preventing global climate change. Climate activists will say, “We need to be leaders, and if we adopt such policies then so will neighboring cities, and eventually neighboring states and the whole country.” Those arguments are just nonsense. Even if the United States were to meet the targets that the Biden administration has set, there will be zero effect on global temperatures by the year 2100.

You write in Adapt and Be Adept that policies such as the carbon tax, cap-and-trade, and increased public expenditures will result in negative unintended consequences. Will you explain some of the consequences of government activism on the environment?

I will start with the expenditures of billions of dollars proposed by the Biden administration and the Paris Accord. The argument is that spending that kind of money is worthwhile because it will result in reduced global temperatures. Even if the scant—at best—temperature reductions are achieved, the poor would not be able to afford the economy’s transition from fossil fuels to wind and solar technology. The cost of electricity will rise immensely. That wouldn’t affect wealthy people as much as it would poor people.

Cap-and-trade would also have negative consequences. It’s the idea that the government will cap carbon emissions and establish a marketplace where an individual or firm would have to buy credits from other entities that hold them. I was at a Wall Street Journal conference a few years ago where this topic was raised in a panel featuring Jeffrey Immelt, then CEO of General Electric. During the question-and-answer period, I asked Immelt, “Such a system would really help General Electric, because it will be given an allowance of credits, but what about the people who have to buy them?” He replied, “If you are not at the table, you’re on the menu.” So, the unintended consequence of cap-and-trade is that big corporations would be at the table because they have the power and influence to lobby government, and the little guy would face higher costs because he would have to purchase credits.

The same can be said about a carbon tax. A carbon tax would impose huge costs on poor people in the United States and across the world, and yet we continue to push it forward, while we appropriately worry about income distribution. The book describes the carbon tax as an example of “blackboard economics.” It looks good on the blackboard, but not so good if you look out the window at the real political world.

You write that the prospects of climate change can be reduced by individuals and firms adapting to the environment through market processes, entrepreneurial activities, and industrial evolution. How could individuals and firms driven by self-interest provide better solutions on the environment than government policies that some would deem as altruistic?

There is certainly nothing altruistic in how market forces deal with climate change and induce people to adapt and be adept. That said, I don’t think there is anything really altruistic about government policies that impose these high costs on society, especially lower-income people.

Let’s focus on how people adapt to changing environmental circumstances. Prior to the climate change discussion, people were adapting all the time with innovations such as more fuel-efficient cars. If you explore the efficiency of the internal combustion engine when it was powering the first Ford Model-Ts from the assembly line, they were incredibly inefficient. They were emitting a lot of carbon and other emissions into the air. Today, given the limits of physics, they’re nearly as efficient as they can ever be. This remarkable improvement was not necessarily altruistically motivated, but it produced a cleaner and healthier environment.

I always like to say, “Wealthier is healthier.” This is true both for individuals and the environment. As the nation has become wealthier, we have demanded a cleaner environment. Ultimately, the marketplace provides the kinds of incentives that will get people to adapt to climate change if government steps out of the way.

Let me give another example. The risk of climate change along coastlines is real. There are increased storm surges and damage from hurricanes. The people living on coastlines are beginning to wonder if they should relocate, because one day they might be standing on the seashore and tide is lapping over their toes, and then in subsequent times it is up to their ankles and then their knees. The data shows that beachfront property values have declined in Miami relative to homes that sit on higher elevations. People understand that it is better to build in other places than the beach. Furthermore, when we understand risk, we build differently. We build houses on pedestals and with materials to withstand winds and storms.

In Michigan, we’re seeing a migration of cherry orchards from the south to the Upper Peninsula. As a result of climate change, farmers have discovered that there are longer growing seasons in the northern part of that state. This sort of adaptation will go a long way toward mitigating the impacts of climate change that are alleged to occur.

A portion of the book deals with how to measure costs of a degraded environment. What are some innovative ways costs can be measured to help individuals and firms adapt?

Environmental costs are understood mostly at the local level, such as the cases I mentioned earlier including people living on coastlines and the cherry farmers in Michigan. People do get measures by looking at the thermometer and feeling what it’s like outside. Much of the adaptation in the economy comes from our personal interaction with the environment. However, this can be a situation where even a small government guy like me sees a role that government can play. The best thing that government can do to help adaptation is to provide systematic, truthful, clear, and transparent data to people, so that they can understand the tangible impacts of climate change. With that data, we can more easily adapt.

What is the major effect that people will feel from climate change and how will they adapt to that measure?

The main consequence of climate change is increased risks. Risks caused by higher sea levels. Risks caused by greater storm surges. Risk caused by more wildfires. The adaptation associated to those risks is what will allow us to deal with climate change. The markets that deal best with risks are land markets and asset markets. I already mentioned how Miami real estate prices are adjusting. Across the world there's growing data that these land markets reflect the effects of higher climate change risk. In some cases, it's not a higher risk, it's a higher benefit, such as the ability of farmers to now grow cherries in the Upper Peninsula of Michigan. Accordingly, asset markets adjust to risk, as do finance and insurance markets.

We can’t let government regulation stand in the way of citizens receiving useful information. Similar to the data that government can provide, we are seeing an unbelievable number of products offered by financial and insurance firms that allow us to adapt to climate change. The California wildfire issue is a great example of what happens when we don’t allow insurance markets to accurately reflect the risks of fire caused by climate change. California forces insurance companies to provide policies to people who live in these fire risk areas. Even though we know these areas are high risk, the state regulates the price of insurance downward.

In short, markets help us better understand the risks posed by changes in our environment, and they ultimately provide us with the incentives and tools to adapt.