Using market-based instruments to enhance climate resilience

Market-based instruments have been used extensively in areas such as carbon trading, biodiversity conservation, watershed protection, urban planning, and renewable energy to address market failures, to increase the cost-effectiveness of public spending, and to leverage new sources of funding for social and environmental objectives. However, they are yet to be widely applied to climate change adaptation, or to practices that enhance the resilience of communities dealing with climatic extremes and disasters. The potential exists to utilize market-based instruments to enhance climate resilience by promoting land uses such as wetlands, mangrove forests, urban green space, and physical infrastructure that can act as buffers against projected increases in storm surges, high rainfall events, heat waves, and wildfire. The role of market-based instruments in generating income, employment, and community engagement may also enhance the social capital needed for communities to cope with extreme events. Previous experience with market-based instruments provides policy-makers working on climate resilience with evidence on what has worked in other contexts and where problems have arisen around the use of such instruments. Combining environmental economics and resilience theory also requires careful consideration to be given to the key assumptions that underpin these different approaches, such as the tension between efficiency as an overarching goal in market economics and the value placed on redundancy and diversity by resilience scholars. This chapter explores these tensions and outlines a set of principles for adapting existing market-based instruments or using them as models for the design of new instruments aimed at enhancing climate resilience.