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

1. Discounting, Equity, Uncertainty
• The problem
• The solution
– What will it cost?
– What to do?

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. -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. 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. 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. -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. -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. -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. -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. 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?