Climate Policy Under Sustainable Discounted Utilitarianism

29 Pages Posted: 5 Sep 2011

See all articles by Simon Dietz

Simon Dietz

London School of Economics - Grantham Research Institute on Climate Change and the Environment and Department of Geography and Environment

Geir B. Asheim

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: August 31, 2011

Abstract

Empirical evaluation of policies to mitigate climate change has been largely confined to the application of discounted utilitarianism (DU). DU is controversial, both due to the conditions through which it is justified and due to its consequences for climate policies, where the discounting of future utility gains from present abatement efforts makes it harder for such measures to justify their present costs. In this paper, we propose sustainable discounted utilitarianism (SDU) as an alternative principle for evaluation of climate policy. Unlike undiscounted utilitarianism, which always assigns zero relative weight to present utility, SDU is an axiomatically based criterion, which departs from DU by assigning zero weight to present utility if and only if the present is better off than the future. Using the DICE integrated assessment model to run risk analysis, we show that it is possible for the future to be worse off than the present along a ‘business as usual’ development path. Consequently SDU and DU differ, and willingness to pay for emissions reductions is (sometimes significantly) higher under SDU than under DU. Under SDU, stringent schedules of emissions reductions increase social welfare, even for a relatively high utility discount rate.

Keywords: climate change, discounted utilitarianism, intergenerational equity, sustainable development, sustainable discounted utilitarianism

JEL Classification: D630, D710, Q010, Q540

Suggested Citation

Dietz, Simon and Asheim, Geir B., Climate Policy Under Sustainable Discounted Utilitarianism (August 31, 2011). CESifo Working Paper Series No. 3563, Available at SSRN: https://ssrn.com/abstract=1922693 or http://dx.doi.org/10.2139/ssrn.1922693

Simon Dietz

London School of Economics - Grantham Research Institute on Climate Change and the Environment and Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/dietzs

Geir B. Asheim (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47-2285 5498 (Phone)
+47-2285 5035 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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