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Equity and climate policy

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Lecture on equity and climate policy. Covers Chapter 9 of the Climate Economics textbook.

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Equity and climate policy

  1. 1. Discounting, Equity, Uncertainty • The problem • The solution – What will it cost? – What to do?
  2. 2. Optimal emission reduction • Climate change is long-term, global, uncertain problem • If you do not care about the distant future, far-away lands, remote probabilities, you do not care about climate change
  3. 3. -20 -15 -10 -5 0 5 10 100 1,000 10,000 100,000 Welfare-equivalentincomechange(inpercent) Income (in 2005 dollar per person per year)
  4. 4. Differences in Values • Impacts of climate change differ greatly between countries • Initially, people just added the monetised climate change impacts • This caused a furore, as health risks were valued differently depending on income • However, the value of a statistical life is an empirical quantity, and cannot be changed • Instead, one can use different weights for different countries
  5. 5. Equity Weights • Fankhauser et al: • This could imply equal values • That is, national impacts are valued at world average values                 ; 1 1 c c C C U c Y W c cW c c cM W U Y D D D W Y           0 0 1 1 1 1 C C C C cW W W c c c c cW c c c cc c c W Y Y Y Y D D V I V I V I Y Y Y Y
  6. 6. -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% No equity, no uncertainty
  7. 7. -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% No equity, no uncertainty Equity, no uncertainty
  8. 8. -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% No equity, no uncertainty No equity, uncertainty
  9. 9. -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% -200 0 200 400 600 800 1000 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Socialcostofcarbon($/tC) rate of risk aversion PRTP=1% PRTP=3% PRTP=2% No equity, no uncertainty Equity, no uncertainty No equity, uncertainty Equity, uncertainty
  10. 10. What values • The rates of pure time preference, inequity aversion, and risk aversion describe how much we care about the future, others, uncertainties • Two approaches to such ethical parameters – Philosophy, religion • Would what Jesus/Lord Stern/Lady Gaga do? – Revealed preferences • What does the average person do? • Consistency is crucial – If you don‘t care about Africa in your trade policy, why do you care about Africa in your environmental policy?

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