Equity Weighting and the Marginal Damage Costs of Climate Change

45 Pages Posted: 28 Apr 2007

See all articles by David Anthoff

David Anthoff

University of California, Berkeley - Energy and Resources Group

Cameron J. Hepburn

London School of Economics, Grantham Research Institute

Richard S. J. Tol

The Economic and Social Research Institute, Dublin; Institute for Environmental Studies, Free University Amsterdam

Date Written: April 2007

Abstract

Climate change would impact different countries differently, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. Equity-weighted estimates of the marginal damage cost of carbon dioxide emissions are substantially higher than estimates without equity-weights; equity-weights may also change the sign of the social cost estimates. Equity weights need to be normalised. Our estimates differ by two orders of magnitude depending on the region of normalisation. A discounting error of equity weighted social cost of carbon estimates in earlier work (Tol, Energy Journal, 1999), led to an error of a factor two. Equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. The assumed scenario is important too, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities. Because of this, variations in the assumed inequity aversion have little effect on the marginal damage cost in some scenarios, and a large effect in other scenarios.

Keywords: Marginal Damage Costs, Climate Change, Equity

JEL Classification: Q54

Suggested Citation

Anthoff, David and Hepburn, Cameron J. and Tol, Richard S. J., Equity Weighting and the Marginal Damage Costs of Climate Change (April 2007). FEEM Working Paper No. 43.2007. Available at SSRN: https://ssrn.com/abstract=983032 or http://dx.doi.org/10.2139/ssrn.983032

David Anthoff (Contact Author)

University of California, Berkeley - Energy and Resources Group ( email )

United States

Cameron J. Hepburn

London School of Economics, Grantham Research Institute ( email )

Houghton Street
London, WC2A 2AE
Great Britain

HOME PAGE: http://www.cameronhepburn.com

Richard S. J. Tol

The Economic and Social Research Institute, Dublin ( email )

Whitaker Square
Sir John Rogerson's Quay
Dublin 2
United States

HOME PAGE: http://www.esri.ie

Institute for Environmental Studies, Free University Amsterdam ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands

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