Incidental Adaptation: The Role of Non-climate Regulations

Abstract

When a non-climate institution, policy, or regulation corrects a pre-existing market failure that would be exacerbated by climate change, it may also incidentally induce climate adaptation. This regulation-induced adaptation can have large positive welfare effects. We develop a tractable analytical framework of a corrective regulation where the market failure interacts with climate, highlighting the mechanism of regulation-induced adaptation: reductions in the climate-exacerbated effects of pre-existing market failures. We demonstrate this empirically for the US from 1980 to 2013, showing that ambient ozone concentrations increase with rising temperatures, but that such increase is attenuated in counties that are out of attainment with the Clean Air Act’s ozone standards. Adaptation in nonattainment counties reduced the impact of a 1 °C increase in climate normal temperature on ozone concentration by 0.64 parts per billion, or about one-third of the total impact. Over half of that effect was induced by the standard, implying a regulation-induced welfare benefit of $412–471 million per year by mid-century under current warming projections.