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

  • Snorre Kverndokk
  • Eric Nævdal
  • Linda Nøstbakken

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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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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  1. Brita Bye & Snorre Kverndokk & Knut Rosendahl, 2002. "Mitigation costs, distributional effects, and ancillary benefits of carbon policies in the Nordic countries, the U.K., and Ireland," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 7(4), pages 339-366, December.
  2. Kverndokk, Snorre & Rose, Adam, 2008. "Equity and justice in global warming policy," MPRA Paper 24272, University Library of Munich, Germany.
  3. Acemoglu, Daron & Aghion, Philippe & Bursztyn, Leonardo & Hemous, David, 2011. "The Environment and Directed Technical Change," CEPR Discussion Papers 8660, C.E.P.R. Discussion Papers.
  4. 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, vol. 47(1), pages 91-109, September.
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  16. Stefanie Glotzbach & Stefan Baumgartner, 2012. "The Relationship between Intragenerational and Intergenerational Ecological Justice," Environmental Values, White Horse Press, vol. 21(3), pages 331-355, August.
  17. Charles D. Kolstad, 2011. "Public Goods Agreements with Other-Regarding Preferences," NBER Working Papers 17017, National Bureau of Economic Research, Inc.
  18. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
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  20. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
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