ON INTERNATIONAL EQUITY WEIGHTS AND NATIONAL DECISION MAKING ON CLIMATE CHANGE

Estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions. Implicitly or explicitly, such estimates assume a social welfare function and hence a particular attitude towards equity and justice. We show that previous approaches to equity weighing are inappropriate from a national decision maker’s point of view, because domestic impacts are not valued at domestic values. We propose four alternatives (sovereignty, altruism, good neighbour, and compensation) with different views on concern for and liability towards foreigners. The four alternatives imply radically estimates of the social cost of carbon and hence the optimal intensity of climate policy.Domestic climate policy, social cost of carbon, equity weights

ON INTERNATIONAL EQUITY WEIGHTS AND NATIONAL DECISION MAKING ON CLIMATE CHANGE. ESRI Research Bulletin 2010/4/2

Climate change is a moral problem. The main reason to reduce greenhouse gas emissions is a concern for faraway lands (Schelling 2000), distant futures (Nordhaus 1982), and remote probabilities (Weitzman 2009). The people who emit most are least affected by climate change, and the benefits of their abatement would be diffused. Carbon dioxide dwells in the atmosphere for decades and the effects on temperature and sea level play out over even longer periods. On central projections climate change and its impacts are a nuisance for rich countries and a problem for poor countries. But there is a chance that things will go horribly wrong. If you do not care about risk, the future, or other people, then you have little reason to care about climate change

Energy Use and Appliance Ownership in Ireland. WP278. February 2009

A necessary condition of an efficient global climate change mitigation policy is to equate marginal abatement costs across world regions to ensure use of the cheapest abatement options available. The welfare economic justification for such an approach rests on lump sum transfers between regions to compensate for any unwanted distributional consequences of such a policy. I contrast this efficient solution with a second best situation in which lump sum transfers between regions are impossible. I derive that in a dynamic setting optimal taxes are different in such a case for regions with different per capita consumption. I estimate the optimal tax rates with the integrated assessment model FUND and find that optimal mitigation is less stringent when equity is explicitly considered for widely used parameter choices of a utilitarian social welfare function

Government Failure and Market Failure: On the Inefficiency of Environmental and Energy Policy

In this essay, we describe some important themes in energy and environmental policy. There are two main reasons for our interest in these policies. First, such policies will likely be important in the coming decades as issues related to climate change and energy security come to the fore. Second, there are important lessons to be learned from a careful review of the actual performance of energy and environmental policies. We undertake a selective survey of the literature to highlight what is known about the efficiency of particular kinds of policies, laws and regulations in these areas.

Optimal global dynamic carbon taxation

A necessary condition of an efficient global climate change mitigation policy is to equate marginal abatement costs across world regions to ensure use of the cheapest abatement options available. The welfare economic justification for such an approach rests on lump sum transfers between regions to compensate for any unwanted distributional consequences of such a policy. I contrast this efficient solution with a second best situation in which lump sum transfers between regions are impossible. I derive that in a dynamic setting optimal taxes are different in such a case for regions with different per capita consumption. I estimate the optimal tax rates with the integrated assessment model FUND and find that optimal mitigation is less stringent when equity is explicitly considered for widely used parameter choices of a utilitarian social welfare function

On International Equity Weights and National Decision Making on Climate Change

Estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions. Implicitly or explicitly, such estimates assume a social welfare function and hence a particular attitude towards equity and justice. We show that previous approaches to equity weighing are inappropriate from a national decision maker’s point of view, because domestic impacts are not valued at domestic values. We propose four alternatives (sovereignty, altruism, good neighbour, and compensation) with different views on concern for and liability towards foreigners. The four alternatives imply radically estimates of the social cost of carbon and hence the optimal intensity of climate policy.Domestic Climate Policy, Social Cost of Carbon, Equity Weights

On International Equity Weights and National Decision Making on Climate Change

Estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions. Implicitly or explicitly, such estimates assume a social welfare function and hence a particular attitude towards equity and justice. We show that previous approaches to equity weighing are inappropriate from a national decision maker’s point of view, because domestic impacts are not valued at domestic values. We propose four alternatives (sovereignty, altruism, good neighbour, and compensation) with different views on concern for and liability towards foreigners. The four alternatives imply radically estimates of the social cost of carbon and hence the optimal intensity of climate policy.domestic climate policy, social cost of carbon, equity weights

Equity weighting and the marginal damage costs of climate change

Climate change would impact different countries differently, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. Equity-weighted estimates of the marginal damage cost of carbon dioxide emissions are substantially higher than estimates without equity-weights; equity-weights may also change the sign of the social cost estimates. Equity weights need to be normalised. Our estimates differ by two orders of magnitude depending on the region of normalisation. A discounting error of equity weighted social cost of carbon estimates in earlier work (Tol, Energy Journal, 1999), led to an error of a factor two. Equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. The assumed scenario is important too, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities. Because of this, variations in the assumed inequity aversion have little effect on the marginal damage cost in some scenarios, and a large effect in other scenarios.marginal damage costs, climate change, equity

Equity Weighting and the Marginal Damage Costs of Climate Change

Climate change would impact different countries differently, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. Equity-weighted estimates of the marginal damage cost of carbon dioxide emissions are substantially higher than estimates without equity-weights; equity-weights may also change the sign of the social cost estimates. Equity weights need to be normalised. Our estimates differ by two orders of magnitude depending on the region of normalisation. A discounting error of equity weighted social cost of carbon estimates in earlier work (Tol, Energy Journal, 1999), led to an error of a factor two. Equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. The assumed scenario is important too, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities. Because of this, variations in the assumed inequity aversion have little effect on the marginal damage cost in some scenarios, and a large effect in other scenarios.Marginal Damage Costs, Climate Change, Equity

SEA LEVEL RISE AND EQUITY WEIGHTING

Using the FUND model, an impact assessment is conducted over the 21st century for rises in sea level of up to 2-m/century and a range of national socio-economic scenarios. This model balances the costs of retreat with the costs of protection, including the effects of coastal squeeze. While the costs of sea-level rise increase due to greater damage and protection costs, the model suggests that an optimum response in a benefit-cost sense remains widespread protection of developed coastal areas, as identified in earlier analyses. The socio-economic scenarios are also important in terms of influencing these costs. In terms of the four components of costs considered in FUND, protection seems to dominate, with substantial costs from wetland loss under some scenarios. The regional distribution of costs shows that a few regions experience most of the costs, especially East Asia, North America, Europe and South Asia. Importantly, this analysis suggests that protection is much more likely and rational than is widely assumed, even with a large rise in sea level. However, there are some important limitations to the analysis, which collectively suggest that protection may not be as widespread as suggested in the FUND analysis. Equity weighting allows the damages to be modified to reflect the wealth of those impacted by sea-level rise. Taking these distributional issues into account increases damage estimates by a factor of three, reflecting that the coasts fall disproportionately on poorer developing countries.climate change, sea level rise, equity weighting