Equitable Cost-Benefit Analysis of Climate Change

20 Pages Posted: 5 Mar 2000

See all articles by Richard S. J. Tol

Richard S. J. Tol

VU University Amsterdam - Institute for Environmental Studies (IVM); Carnegie Mellon University - Center for Integrated Study of the Human Dimensions of Global Change; University of Hamburg - Centre for Marine and Climate Research (ZMK); Princeton University

Date Written: MAY 1999

Abstract

The literature of welfare-maximising greenhouse gas emission reduction strategies pays remarkably little attention to equity. This paper introduces three ways to consider efficiency and equity simultaneously. The first method, inspired by Kant and Rawls, maximises net present welfare, without international co-operation, as if all regions share the fate of the region affected worst by climate change. Optimal emission abatement varies greatly depending on the spatial and temporal resolution, that is, the grid at which 'maximum impact' is defined. The second method is inspired by Varian's no-envy. Emissions are reduced so as to equalise total costs and benefits of climate change over the world and over time. Emission reductions are substantial. This method approximately preserves the inequities that would occur in a world without climate change. The third method uses non-linear aggregations of welfare (the utilitarian default is linear) in a co-operative setting. This method cannot distinguish between sources of inequity. The higher the aversion to inequity, the higher optimal greenhouse gas emission reduction.

JEL Classification: C71, C72, D61, D63, Q25, Q40

Suggested Citation

Tol, Richard S. J., Equitable Cost-Benefit Analysis of Climate Change (MAY 1999). Available at SSRN: https://ssrn.com/abstract=200574 or http://dx.doi.org/10.2139/ssrn.200574

Richard S. J. Tol (Contact Author)

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

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Amsterdam, 1081 HV
Netherlands
+31 20 444 9555 (Phone)
+31 20 444 9553 (Fax)

Carnegie Mellon University - Center for Integrated Study of the Human Dimensions of Global Change

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United States

University of Hamburg - Centre for Marine and Climate Research (ZMK)

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D-22529 Hamburg
Germany

Princeton University ( email )

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United States

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