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The Trade-off between Intra- and Intergenerational Equity in Climate Policy

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  • Snorre Kverndokk
  • Eric Nævdal
  • Linda Nøstbakken

Abstract

This paper focuses on two equity dimensions of climate policy, intra- and intergenerational, 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 global warming, but also has an inequality aversion over current consumption allocations. Inequality aversion generally lifts the consumption path of the poor region, while the rich region must take a greater share of the climate burden. Furthermore, with inequality aversion, the optimal climate policy generally leads to higher investment in clean capital in the North and in dirty capital in the South, thereby allowing the South to pollute more and develop faster. The optimal policy may even require the poor region to increase emissions relative to the uncoordinated business-as-usual case. Introducing local pollution, transfers and loans confirm the main results. However, loans to poor countries to reduce inequality may result in permanent inequality, and hence, debt remittance may be part of the optimal climate policy.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-06/cesifo1_wp4285.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4285.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4285

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Keywords: intragenerational equity; intergenerational equity; inequality aversion; climate policy; economic development; local pollution; international transfers;

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  19. Astrid Dannenberg & Bodo Sturm & Carsten Vogt, 2010. "Do Equity Preferences Matter for Climate Negotiators? An Experimental Investigation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 47(1), pages 91-109, September.
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Cited by:
  1. Johan Eyckmans & Sam Fankhauser & Snorre Kverndokk, 2013. "Equity, Development Aid and Climate Finance," Grantham Research Institute on Climate Change and the Environment Working Papers, Grantham Research Institute on Climate Change and the Environment 123, Grantham Research Institute on Climate Change and the Environment.

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