The comparative importance for optimal climate policy of discounting, inequalities and catastrophes

Abstract

Integrated assessment models (IAMs) of climate and the economy provide estimates of the social cost of carbon and inform climate policy. With the Nested Inequalities Climate Economy model (NICE) (Dennig et al. PNAS 112:15,827-15,832, 2015), which is based on Nordhaus's Regional Integrated Model of Climate and the Economy (RICE), but also includes inequalities within regions, we investigate the comparative importance of several factors-namely, time preference, inequality aversion, intraregional inequalities in the distribution of both damage and mitigation cost and the damage function. We do so by computing optimal carbon price trajectories that arise from the wide variety of combinations that are possible given the prevailing range of disagreement over each factor. This provides answers to a number of questions, including Thomas Schelling's conjecture that properly accounting for inequalities could lead the inequality aversion parameter to have an effect opposite to what is suggested by the Ramsey equation.

Combining ambitious climate policies with efforts to eradicate poverty

“…Quantifying the poverty implications of climate change and mitigation policies requires capturing the heterogeneity within countries 10 , 26 , 27 . Although these distributional effects are of key importance 28 – 30 , so far most integrated assessment models (IAMs)—the major tools for analysing climate policies—do not represent them 27 . At the same time, the existing empirical literature on distributional effects of climate policies within individual countries (e.g.…”

Discounting and Climate Policy

“…Dennig et al (2015) put forward an integrated assessment model with different measures for both intra-regional and intergenerational inequality aversion. They show that Thomas Schelling's conjecture that the inequality parameter can have the opposite effect on the intensity of climate policy to what is suggested by the Keynes-Ramsey rule (Budolfson, et al, 2017). Hence, despite that higher IIA implies a higher SDR and thus a lower SCC, when inequalities are properly accounted for, it is possible that climate policy should become more ambitious under higher (intergenerational and intra-regional) inequality aversion.…”

Inégalités mondiales et changement climatique

“…Cela peut augmenter la valeur de l'atténuation d'un facteur compris entre 2 et 10 (Dennig et al, 2015 ; Anthoff et Emmerling, 2018) (graphique 2). L'ampleur de cet effet peut être limitée lorsque les coûts de l'atténuation pèsent de manière disproportionnée sur les plus vulnérables (Budolfson et al, 2017). Néanmoins, même lorsque les coûts sont partagés de manière régressive entre pays, l'atténuation permet de réduire les inégalités à longterme dans de nombreux scénarios socioéconomiques futures (Taconet et al, 2020).…”