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The Free-Market Case for Climate Science

Paul J. Ferraro is a 2016 Rockefeller Bellagio Center Resident and the Bloomberg Distinguished Professor in the Bloomberg School of Public Health, the Carey Business School and the Whiting School of Engineering at Johns Hopkins University.
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Are you someone who has faith in the power of free markets? Then you should naturally accept the evidence that human activity is bringing about climate change.

Free and competitive markets work efficiently in large part because they are phenomenal information aggregators, gathering and sorting facts about consumer preferences and business production costs, and guiding market participants to engage in actions that provide benefits to both sides. Markets can easily help figure out the most efficient way to deliver coffee to people’s homes, for example, or to reduce air pollution in cities. Markets also determine which ideas succeed (the iPhone, for instance) and which ones fail (Kool Kardashian Kard).

Likewise, scientific ideas thrive or perish in a marketplace of their own. Whereas participants in an economic market are rewarded for delivering goods or services well, participants in the marketplace of scientific ideas get rewarded for overturning conventional thinking. This is because the scientific method works not by proving theories but by disproving them: Scientists pose and test rival explanations, and ultimately, the concepts that are disproven fall away while those that aren’t prevail.

I myself have made a career of introducing such rival explanations in the field of environmental science. I’ve shown, for example, that the Endangered Species Act, when not accompanied by funding to help with species recovery, may put species in greater danger, not less. I’ve shown that the environmental and social impacts of national parks and reserves are much more modest than their proponents and opponents claim. And I’ve described how attempts to conserve water by improving the efficiency of irrigation may in fact increase water use. In short, like most scientists, I am rewarded when I disconfirm, not when I confirm, a way of thinking.

Like any other market, the market for scientific ideas has imperfections and frictions, but it is characterized by competition and by free entry and exit -- hallmarks of the idealized free market described in any introductory economics textbook.

It’s true that incumbent scientists, like incumbent businesses in all markets, try to set up barriers to new competitors. Review panels of incumbents vet new ideas for academic journals and government research funding. But in time such barriers are surmounted. Like those perfect markets in economics textbooks, scientific markets never leave “cash on the table” -- they don’t leave good ideas unexploited, not for long. Eventually those ideas spread widely.

After more than 25 years, the idea that human activity has led to greater greenhouse-gas emissions and, thus, greater climate change has won out over competing theories to explain how the Earth’s climate system operates. Over time, the number of rival explanations has declined, rather than increased. And refinements to the dominant theory have strengthened, rather than weakened, the case for it. At a meeting I recently attended, the chairman of a university’s department of Earth and planetary sciences announced that he would no longer hire scholars in climate science because “the science is done.” While important measurements and observations will continue, the theoretical questions at the frontier have been answered.

There’s reason to think the evidence for human-caused climate change is prevailing in the economic marketplace, as well: Property insurers and other profit-maximizing businesses with a substantial financial stake in the concept are taking actions that demonstrate they believe the evidence. They are working to create more accurate models of climate change and to price climate risk into insurance programs, even threatening lawsuits against actors who do not try to limit ongoing climate change. As we say in economics, revealed preferences are more convincing than stated ones.

Fundamentally, the concept of human-caused climate change has won out because alternative views -- including arguments that the theory is a hoax spread by anti-growth and anti-technology Jeremiahs -- contradict what competitive markets are demonstrating.

In the end, then, it is inconsistent to simultaneously accept that markets are powerful ways to allocate goods and services in the economy and also deny that human activity is causing substantial climate change. There’s room to argue over the economic implications of climate change or the best ways to mitigate and adapt to it, but the scientific consensus is no longer a matter of debate.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Paul J. Ferraro at

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Mary Duenwald at