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The more climate skeptics there are, the fewer climate entrepreneurs

By Matthew E. Kahn & Daxuan Zhao
Photos by Christian Åslund & The Norwegian Polar Institute

In our new paper for the National Bureau for Economic Research, we argue that the presence of climate skeptics reduces the aggregate demand for products that help with climate adaptation—which means that innovative companies are less likely to devote their efforts to solving these challenges.

The “market potential” for climate adaptation matters because capitalism can help us to adapt to climate change along many fronts. To protect us from climate change-induced heat, we will need more-efficient air-conditioning. To reduce flood damage to real estate, we will need architectural innovations. Capitalism could play a fundamental role in climate adaptation, if firms anticipate that there will be a large market for the products they develop.

Our paper illustrates that globalization is an essential factor.

People all over the world are likely to face the similar challenges of sea-level rise and extreme weather, and this suggests that globalization can play a key role in creating incentives for climate-adaptation entrepreneurs. Globalization helps to offset the climate-change adaptation challenge posed by the existence of climate skeptics in any one country.

Climate skeptics can, of course, change their beliefs over their lifetimes as new information arrives. In this case, the climate-adaptation demand of nonskeptics benefits the skeptics, because entrepreneurs are more likely to invest in climate-resilient products.
If climate skeptics eventually realize that climate change is real and man-made, they’ll start to demand products that help them adapt to it. But those products will only be available to the extent that their fellow citizens recognized the threat earlier, creating the incentive for entrepreneurs to invent them.

Matthew E. Kahn is a professor of economics at the University of Southern California. Daxuan Zhao is an assistant professor of real estate and finance at the Renmin University of China’s School of Business.

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