How ethical choices shape policies in the context of climate risks?

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Marc Fleurbaey, Aurélie Méjean, Antonin Pottier and Stéphane Zuber

The most recent work in the climate sciences stresses the risk of abrupt and irreversible climate change that would endanger numerous species, including human beings. Such changes can be described as climate catastrophes. They are deeply uncertain, which makes it difficult to assess the probability of their occurring. They are, however, receiving growing attention from economists, especially those developing integrated economy–climate assessment models (IAMs), to study the interactions between the climatic system and the economy. Climate disasters, in inducing the early death of people who might have had children, prevent numerous future individual from existing. This poses new ethical problems, underlined in the fifth report of the Intergovernmental Panel on Climate Change (IPCC), including the question of what value should be given to the existence of future generations (1). This is in addition to the ethics debates already taking place in climate-change economics about the social discount rate (which converts the future costs of potential catastrophes into actual costs). How much importance should be attributed to the well-being of future generations and to the inequalities among them? These debates are crucial in the choice of climate policies, as the recommendations of the second Stern report show (2). These recommandations were quite different from those made by other economists, including William Nordhaus, recent Nobel prize winner. One of important source of disagreement between them is the ethical question about evaluating future climate effects.

In this article, Fleurbaey, Méjean, Pottier and Zuber discuss these ethical choices and their influence on climate policy by taking into account possible catastrophes. They assume that climate change can influence the probability of disasters occurring; therefore, there must be new trade-offs between current consumption and the probability of catastrophic events. These trade-offs will depend on the ethical parameters concerning the population size of future generations and the redistribution of wealth among generations. The authors show that there is no a priori unequivocal relationship between these two sets of parameters and climate policy choices: a much greater preference for population size, for example, tends to increase a society’s willingness to pay to reduce the risk of catastrophe, but at the same time it decreases the value of reducing climate damage (this effect arises from the increase in the social discount rate). (3).

To obtain more precise results, the authors develop an IAM with an endogenous probability of a catastrophe. They compare three scenarios: one scenario in which emissions continue to increase, another one in which the temperature increase is limited to 3°C and a third one in which it is limited to 2°C. They show that a strong preference for population size always leads to more ambitious climate policies, the policy of a 2°C limit almost always being chosen when that preference is strongest, even when the risk is low. In addition, preference for intergenerational redistribution has a non-monotone effect: a greater preference at first reduces efforts to limit missions (because the social discount rate is higher) but then increases them again. This suggests the possibility of a consensus in favour of ambitious climate policies among groups with different ethical convictions: those with opposing opinions about the necessity of intergenerational redistribution can agree on what climate policy to adopt.

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(1) These ethical problems are discussed in chapter 3 of the fifth report (2014) of the third IPCC working group, available at: https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_full.pdf
(2) The Stern report is available at: http://www.hm-treasury.gov.uk/sternreview_index.htm.
(3) The social discount rate translates future gains and losses into present value. A higher social discount rate reduces the present value.

Original title of the article: Intergenerational equity under catastrophic climate change

Published in: Working paper CES 2017.40 - October 2017

Available at: https://halshs.archives-ouvertes.fr/halshs-01599453