Designing policy for climate change requires analyses which integrate the interrelationship between the economy and the environment. We argue that, despite their dominance in the economics literature and influence in public discussion and policymaking, the methodology employed by Integrated Assessment Models (IAMs) rests on flawed foundations, which become particularly relevant in relation to the realities of the immense risks and challenges of climate change, and the radical changes in our economies that a sound and effective response require. We identify a (...) set of critical methodological problems with the IAMs which limit their usefulness and discuss the analytic foundations of an alternative approach that is more capable of providing insights into how best to manage the transition to net-zero emissions. (shrink)

This paper examines a broad range of ethical perspectives and principles relevant to the analysis of issues raised by the science of climate change and explores their implications. A second and companion paper extends this analysis to the contribution of ethics, economics and politics in understanding policy towards climate change. These tasks must start with the science which tells us that this is a problem of risk management on an immense scale. Risks on this scale take us far outside the (...) familiar policy questions and standard, largely marginal, techniques commonly used by economists; this is a subject that requires the full breadth and depth of what economics has to offer and a much more thoughtful view of ethics than economists usually bring to bear. Different philosophical approaches bring different perspectives on understanding and policy, yet they generally point to the case for strong action to manage climate change. (shrink)

Both intertemporal and intratemporal equity are central to the examination of policy towards climate change. However, many discussions of intertemporal issues have been marred by serious analytical errors, particularly in applying standard approaches to discounting; the errors arise, in part, from paying insufficient attention to the magnitude of potential damages, and in part from overlooking problems with market information. Some of the philosophical concepts and principles of Paper 1 are applied to the analytics and ethics of pure-time discounting and infinite-horizon (...) models, providing helpful insights into orderings of welfare streams and obligations towards future generations. Such principles give little support for the idea of discrimination by date of birth. Intratemporal issues are central to problematic and slow-moving international discussions and are the second focus of this paper. A way forward is to cast the policy issues and analyses in a way that keeps equity issues central and embeds them in the challenge of fostering the dynamic transition to the low-carbon economy in both developed and developing countries. This avoids the trap of seeing issues primarily in terms of burden-sharing and zero-sum games – that leads to inaction and the most inequitable outcome of all. (shrink)

Ramsey famously condemned discounting “future enjoyments” as “ethically indefensible”. Suppes enunciated an equity criterion which, when social choice is utilitarian, implies giving equal weight to all individuals’ utilities. By contrast, Arrow accepted, perhaps reluctantly, what he called Koopmans’ :287–309, 1960) “strong argument” implying that no equitable preference ordering exists for a sufficiently unrestricted domain of infinite utility streams. Here we derive an equitable utilitarian objective for a finite population based on a version of the Vickrey–Harsanyi original position, where there is (...) an equal probability of becoming each person. For a potentially infinite population facing an exogenous stochastic process of extinction, an equitable extinction biased original position requires equal conditional probabilities, given that the individual’s generation survives the extinction process. Such a position is well-defined if and only if survival probabilities decline fast enough for the expected total number of individuals who can ever live to be finite. Then, provided that each individual’s utility is bounded both above and below, maximizing expected “extinction discounted” total utility—as advocated, inter alia, by the Stern Review on climate change—provides a coherent and dynamically consistent equitable objective, even when the population size of each generation can be chosen. (shrink)

Ramsey famously pronounced that discounting “future enjoyments” would be ethically indefensible. Suppes enunciated an equity criterion implying that all individuals’ welfare should be treated equally. By contrast, Arrow accepted, perhaps rather reluctantly, the logical force of Koopmans’ argument that no satisfactory preference ordering on a sufficiently unrestricted domain of infinite utility streams satisfies equal treatment. In this paper, we first derive an equitable utilitarian objective based on a version of the Vickrey–Harsanyi original position, extended to allow a variable and uncertain (...) population with no finite bound. Following the work of Chichilnisky and others on sustainability, slightly weakening the conditions of Koopmans and co-authors allows intergenerational equity to be satisfied. In fact, assuming that the expected total number of individuals who ever live is finite, and that each individual’s utility is bounded both above and below, there is a coherent equitable objective based on expected total utility. Moreover, it implies the “extinction discounting rule” advocated by, inter alia, the Stern Review on climate change. (shrink)

A global target of stabilizing greenhouse-gas concentrations at between 450 and 550 parts per million carbon-dioxide equivalent has proven robust to recent developments in the science and economics of climate change. Retrospective analysis of the Stern Review suggests that the risks were underestimated, indicating a stabilization target closer to 450 ppm CO2e. Climate policy at the international level is now moving rapidly towards agreeing an emissions pathway, and distributing responsibilities between countries. A feasible framework can be constructed in which each (...) country takes on its own responsibilities and targets, based on a shared understanding of the risks and the need for action and collaboration on climate change. The global deal should contain six key features: a pathway to achieve the world target of 50 per cent reductions by 2050, where rich countries contribute at least 75 per cent of the reductions; global emissions trading to reduce costs; reform of the clean development mechanism to scale up emission reductions on a sectoral or benchmark level; scaling up of R&D funding for low-carbon energy; an agreement on deforestation; and adaptation finance. (shrink)