The Trade-Off between Intra- and Intergenerational Equity in Climate Policy: Can Carbon Leakage Be Justified?

CREE Working Paper 9/2012

36 Pages Posted: 6 Sep 2012

See all articles by Snorre Kverndokk

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research

Eric Navdal

affiliation not provided to SSRN

Linda Nøstbakken

Norwegian School of Economics (NHH) - Department of Economics

Date Written: August 31, 2012

Abstract

This paper focuses on two equity aspects of climate policy, intra- and intergenerational equity, and analyzes the implications of equity preferences on climate policy, and on the production and consumption patterns in rich and poor countries. We develop a dynamic two-region model, in which each region suffers from local pollution and global warming, but also has an inequality aversion over current consumption allocations. Inequality aversion over consumption lifts the consumption path of the poor region, while it lowers the consumption path of the rich region, which must take a greater share of the climate burden. Therefore, a high abatement in the rich region is met by more pollution in the poor region, thus justifying carbon leakages. Moreover, the poor region may even be allowed to increase emissions relative to business as usual under the optimal climate policy. These effects are reinforced when introducing transfers between the regions. However, loans to poor countries to reduce inequality may result in a debt crisis, and debt remittance may be part of the optimal climate policy.

Keywords: Intragenerational equity, intergenerational equity, inequality aversion, climate policy, economic development, carbon leakage, international transfers, debt crisis

JEL Classification: C63, D31, D63, Q54

Suggested Citation

Kverndokk, Snorre and Navdal, Eric and Nøstbakken, Linda, The Trade-Off between Intra- and Intergenerational Equity in Climate Policy: Can Carbon Leakage Be Justified? (August 31, 2012). CREE Working Paper 9/2012. Available at SSRN: https://ssrn.com/abstract=2141683 or http://dx.doi.org/10.2139/ssrn.2141683

Snorre Kverndokk (Contact Author)

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway
+47 22958811 (Phone)
+47 22958825 (Fax)

HOME PAGE: http://www.frisch.uio.no/cv/snorrek_eng.html

Eric Navdal

affiliation not provided to SSRN ( email )

Linda Nøstbakken

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47-55959134 (Phone)

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