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Economics, Ethics and Climate Change


KV Economics of Climate Change Alexander Jagl, Thomas Schinko, Gerald Senzenberger – PowerPoint PPT presentation

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Title: Economics, Ethics and Climate Change

Economics, Ethics and Climate Change
  • KV Economics of Climate Change
  • Alexander Jagl, Thomas Schinko, Gerald

  • Characteristics
  • Ethical aspects
  • Evaluation over time
  • Discounting
  • Risk Uncertainty
  • Public policy
  • Mitigation
  • Adaptation

Market failure
1. Characteristics
  • Public good
  • Non rival
  • Non excludable
  • Negative externality
  • Costs of climate change not borne by emitter
  • Shifted to general public
  • No incentives for emitters to reduce GHGs
  • P lt SCC
  • Biggest market failure in history

Externalities (1)
1. Characteristics
Source Pindyck, Rubinfeld (2001)
Externalities (2)
1. Characteristics
  • Differences from common externalities
  • Global in causes and consequences
  • Long term impacts
  • Uncertainty
  • Effects on global economy

Optimal degree of abatement
1. Characteristics
Source Stern (2007)
Dynamic approach
1. Characteristics
Source Stern (2007)
Ethics and welfare
2. Ethical aspects
  • Effects of climate change are
  • Global
  • Intertemporal
  • Inequitable
  • Poor countries suffer the most BUT
  • Rich countries are responsible for most GHGs
  • At home abroad

GHG Emission - 2000
2. Ethical aspects
GHG by region per capita
2. Ethical aspects
Source IPCC (2007)
Global wealth distribution - 2015
2. Ethical aspects
GHG per unit GDP
2. Ethical aspects
Source IPCC (2007)
Poor Vs Rich
2. Ethical aspects
  • Rich responsible for most GHGS
  • Developing countries are more vulnerable
  • Strong dependence on agriculture
  • Geography (mega deltas, sahel zone,)
  • Fewer resources for adaptation
  • Lower health standards

Ethical aspects of climate change
2. Ethical aspects
  • Enhancement of basic social welfare function
  • Millennium development goals
  • questions of rights
  • Sustainability
  • Stewardship

Social Welfare Function (1)
2. Ethical aspects
  • Basic welfare economics (BWE)
  • Focuses on consumption of goods and services
  • welfare from consumption
  • utility maximizing
  • more is better approach
  • only consequences of actions, no room for ethical
    dimensions of processes
  • Single decision maker interaction between
    players important
  • GDP proper indicator for welfare?

Social Welfare Function (2)
2. Ethical aspects
  • enhancement of BWE
  • Broader concept of goods and services
  • Consumption includes
  • Consumption as used in BWE
  • Education
  • Health
  • Environment
  • Social Welfare Function
  • Expressed in terms of real income
  • Major differences in willingness to pay across

Footprint/HDI 2003
2. Ethical aspects
USA, Austria, Cuba
Source WWF (2003)
UN Millenium Development Goals
2. Ethical aspects
  • Provide basics for ethical questions
  • Goal 7 ensure environmental sustainability
  • Integrate the principles of sustainable
    development into country policies and programs
    reverse loss of environmental resources
  • Reduce by half the proportion of people without
    sustainable access to safe drinking water
  • Achieve significant improvement in lives of at
    least 100 million slum dwellers, by 2020

Questions of rights
2. Ethical aspects
  • Protection from harm done by others (e.g.
    property rights,)
  • Polluter pays
  • Moral legal responsibility of OECD-countries
  • How to define emission-rights?
  • Equal amount of emission per capita? Energy
    efficiency, comparative advantages

2. Ethical aspects
  • Future generations should have a right to a
    standard of living no lower than the current one
  • Standard of living for future generations depends
    on a collection of stocks
  • Substitution only to certain degree
  • stewardship, particular aspects of the world,
    which should themselves be past on in a state at
    least as good as that inherited from previous

Conclusion of questions of ethics
2. Ethical aspects
  • Different notions of ethics emphasize different
    aspects, but
  • Main focus similar
  • Consumption
  • Education
  • Health
  • Environment

Discounting (1)
3. Evaluation over time
  • Why? To find present value of future
    consumption increment
  • Marginal comparison approach
  • Investment project with small variations around a
    particular path
  • E.g. new technique in electricity
    generation W1welfare along path with
    project W2welfare along path without
    project ?uhchange in welfare for household h
    because of project

Discounting (2)
3. Evaluation over time
  • Climate change
  • Not-marginal consequences
  • Long-run global effects
  • Many different paths (scenarios)
  • ? marginal comparison approach cant be
  • Evaluation of W for each path
  • Discounting marginal changes along different
    paths but no marginal comparison between paths!

3. Evaluation over time
Discounting (3)
  • Consumption today valued higher than tomorrows
    ? consumption discount rate
  • Pure time preference ? utility discount rate

?discount rate µelasticity of marginal utility
of consumption c/cgrowth rate of consumption
(along path) dpure time discount rate
Source Stern (2007)
Discounting (4)
3. Evaluation over time
  • Conclusions
  • Single constant discount rate for different paths
    is unacceptable
  • High discount rates ? low value for future
    generations ? climate change seen as minor
  • Stern report
  • growing consumption is a reason for
    discounting ? standard consumption discount
  • if you care little about future generations you
    will care little about climate change ? Lower
    pure time discount rate than most other studies

Risk and Uncertainty
3. Evaluation over time
  • High in case of climate change
  • Uncertainty is no alibi for inaction
  • Potential losses gt costs of avoidance
  • Without actions against climate change large
    impacts relative to global economy not-marginal
  • Risk aversion leads to precautionary principle

Different paths
3. Evaluation over time
Source Stern (2007)
Public mitigation policy
4. Public policy
  • Externality requires a price for emissions
  • Pigou tax based on marginal damages
  • RD barriers for innovations
  • Property rights (public good character of
  • Asymmetric information
  • Uncertainty about future carbon prices
  • Moral hazard
  • Grandfathering
  • Price dynamics of fossils
  • Standards and regulations
  • Energy efficiency
  • Landlord-tenant relations in property

International action
4. Public policy
  • Climate change is global problem
  • Climate Mitigation is a public good
  • Sustain international collective necessary
  • Free Riding problem!!!
  • Adaptation provides local benefits -gt private
    returns but prevented by market failures
  • Imperfect information on future impacts
    positive externalities
  • Ethics of adaptation support for developing

Individual decision
4. Public policy
  • Intergenerational
  • Moral obligation for future generation
  • No children, less pollution
  • Lower impacts on our generation
  • Utility maximizing
  • Higher consumption without mitigation
  • Can less carbon related consumption be more
  • Solidarity
  • To whom? Children, other countries? Why?

Thank you for your attention!
Question 1
  • What incentives do the individuals have to
    support mitigation, when non mitigation
    strategies would lead to a higher income during
    his/her lifetime and the effect of climate change
    w or w/o mitigation during his lifetime will be
    non relevant?

Question 2
  • After recognizing the failure of the use of
    renewable standard crops e.g. as biofuels,
    technology efficiency improvements and demand
    reduction are the most promising existing options
    of mitigation. Demand reductions mean less
    industrial work. Do we have to change the meaning
    of life from hard work to low consumption spare
    time activities, like sports?

Question 3
  • One notion of ethics postulates equal share of
    CO2 emissions for everyone. Instead of taxing the
    governments which would lead to further debt
    explosions and demand shocks, shall we tax the
    individuals? Each relevant output/product
    including transport and distribution should be
    CO2 taxed. Governments can make their decisions
    of climate regulations without being in the
    stranglehold of the finance ministers and large
    companies. Collected taxes above the certain
    average shall be given to the people who consumed
    less than they are allowed too.

Question 4
  • Global decisions need global deciders. Nations
    will always decide how they can profit the most,
    like the USA has acted so far. How can the
    United Nations become more powerful? Shall a
    public consensus give complete leadership on
    global problems to them? Or is a new global
    institution necessary, e.g. an United peoples

Question 5
  • Bread is better than nothing. Nothing is better
    than a juicy steak. Therefore bread is better
    than a juicy steak. We cant go on like this on a
    global way and for sure our lifestyle cannot be
    reached by 5 billion other people without severe
    negative effects? What are possibilities fur a
    sustainable and fair future, while preventing
    developing countries from making the same
    mistakes as the OECD?

Question 6
  • What are the Stern Reviews main arguments
    against excessive discounting in the case of
    climate change and how is its aproach different
    from other studies?

Question 7
  • Some would argue, that the negative effects of
    climate change are quite uncertain to happen and
    therefore stringent climate policies are
    unnecessary. How can this somehow rational
    sounding argument be disproved by concentrating
    on costs, consequences risks of action /
    inaction against climate change?

Question 8
  • What are policy options to tackle the market
    failure climate change and what kind of barriers
    exist for options like RD and energy efficiency?