Intergenerational equity under catastrophic climate change

By Global Priorities Institute @ 2017-10-31T13:33 (+3)

This is a linkpost to https://globalprioritiesinstitute.org/aurelie-mejean-et-al-intergeneration-equity-under-catastrophic-climate-change/

Abstract

Climate change raises the issue of intergenerational equity. As climate change threatens irreversible and dangerous impacts, possibly leading to extinction, the most relevant trade-off may not be between present and future consumption, but between present consumption and the mere existence of future generations. To investigate this trade-off, we build an integrated assessment model that explicitly accounts for the risk of extinction of future generations. We compare different climate policies, which change the probability of catastrophic outcomes yielding an early extinction, within the class of variable population utilitarian social welfare functions. We show that the risk of extinction is the main driver of the preferred policy over climate damages. We analyze the role of inequality aversion and population ethics. Usually a preference for large populations and a low inequality aversion favour the most ambitious climate policy, although there are cases where the effect of inequality aversion is reversed.

Introduction

Since the seminal work of Cline (1992) and Nordhaus (1994), the economics literature has mainly considered climate change as a problem of intertemporal consumption trade-off, where the costs of climate change mitigation measures lower consumption today, but increase consumption in the future as some damages due to climate change are avoided. This approach assumes that climate change occurs at a relatively slow pace — a pace which allows ecosystems and societies to adapt — and has reversible impacts.

The literature on climate science has since then pointed out the possibility of tipping points, where the climate and ecosystems may change in abrupt and irreversible ways (Lenton et al., 2008; Scheffer et al., 2001), possibly bringing catastrophic outcomes. Tipping points may include the shutoff of the Atlantic thermohaline circulation, the collapse of the West Antarctic ice sheet or the dieback of the Amazon rainforest. Abrupt climate change may have indirect impacts, for instance through increased migration and conflicts (Reuveny, 2007; Hsiang et al., 2013).

In the environmental economics litterature, catastrophic outcomes are translated into the irreversible reduction of society’s level of consumption or welfare to zero (Cropper, 1976; Clarke and Reed, 1994), or into a discontinuous decline in welfare (Tsur and Zemel, 1996), which is partially reversible.^[1] In these models, catastrophic events are triggered by the level of pollution, whether exogenous or endogenous to the model. Integrated assessment models (IAMs) have been used to account for the effect of stochastic climate catastrophes on the optimal climate policy (Peck and Teisberg, 1995; Gjerde et al., 1999; Lontzek et al., 2015; Lemoine and Traeger, 2016). These studies conclude that stochastic tipping points justify more ambitious emission reductions than in the deterministic case. The risk of climate catastrophes is sometimes modelled as a sudden jump in climate damages when the temperature rises above a given temperature threshold (Ambrosi et al., 2003; Pottier et al., 2015), or through a power law damage function with a large exponent (Ackerman et al., 2010; Weitzman, 2012).

In fact, the possibility that social welfare may drop to zero due to climate change can be interpreted as human extinction. The trade-off is then not only between present and future consumption, but also between present consumption and the possible future extinction of civilization due to climate change (Weitzman, 2009). While the economics literature has mainly focused on the first trade-off, this paper explores the second one. Few papers have approached this issue. Bommier et al. (2015) show that the representation of preferences in terms of risk aversion greatly matters for the appropriate level of mitigation when the risk of catastrophic collapse is accounted for. In their setting, the catastrophe depends on the pollution stock and can be construed as human extinction. Martin and Pindyck (2017) examine the impact of deadly disasters (e.g. disease outbreaks such as the 1918 Spanish flu pandemic), and treat death as a welfare-equivalent reduction in consumption, relying on estimates of the value of a statistical life (VSL).

However, these works do not explicitly address the issue of population ethics, that is the collective attitudes towards population size. The fact that climate change and climate policies could affect the size of the earth’s population raises the issue of evaluating policies with varying population size (Broome, 2012). The question of how to value population change, for instance when accounting for the possibility of climate catastrophes, has been largely ignored in the literature and should be treated in an explicit way to inform climate policy analysis (Millner, 2013; Kolstad et al., 2014).

This paper aims at filling this gap, and at identifying public policies that can strike an acceptable compromise between present and future generations when the potential impact of catastrophic climate change on population is accounted for. As we account for the risk of catastrophic climate change, total population over all generations can vary, which raises the issue of the weight given to total population size in the evaluation. We use an IAM, which provides a simple representation of the interaction between climate and the economy, and allows us to evaluate climate policies. We follow Cropper (1976) and assume that the catastrophe is irreversible and is akin to truncating the planning horizon. We depart from the standard optimization framework, and instead consider various climate policies that are ordered according to their performance in terms of welfare. We explore the impact of inequality aversion, of attitudes towards population size and of the risk of extinction on the preferred climate policy.

The paper is structured as follows. Section 2 presents the analytical framework, the model, and the numerical experiment. The analytical results demonstrate that we cannot predict the impact of changes of ethical parameters (inequality aversion and the value of population size) on policy decision. This is because the preferred climate policy depends on the relative impact of these ethical parameters on the welfare gained due to a lower hazard rate and the welfare lost due to a lower consumption stream. In the numerical analysis presented in section 3, we find cases where increasing inequality aversion favours the most ambitious climate policy. This rather unusual result is explained by the relative effect of inequality aversion on the risk and consumption components of the welfare difference. We also find that the risk of extinction is the main driver of the preferred policy over climate damages. Section 4 concludes.

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