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Equity, Development Aid and Climate Finance

Listed author(s):
  • Johan Eyckmans
  • Sam Fankhauser
  • Snorre Kverndokk

This paper discusses the ethical underpinnings of climate finance. We ask what the optimal flow of financial assistance for mitigation (to reduce emissions), adaptation (to become climate resilient) and development (to increase income) would be if rich countries care about the inter- and intragenerational distribution of consumption in the world. The question is framed as a two-period game of transfers between two regions, North and South. We show that the level of financial assistance from the North will depend on the North�s concern about well-being in the South, which we model as a Fehr-Schmidt utility function. Our main conclusion is that in the absence of market failures (e.g., barriers to adaptation or a weak carbon constraint) the most effective instrument to promote adaptation and mitigation in the South is a development transfer. In pure equity terms, development aid is a more effective instrument for achieving both intergenerational- and intragenerational equity.

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File URL: http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2013/08/WP123-Development-aid-and-climate-finance.pdf
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Paper provided by Grantham Research Institute on Climate Change and the Environment in its series GRI Working Papers with number 123.

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Date of creation: Aug 2013
Handle: RePEc:lsg:lsgwps:wp123
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  4. repec:lsg:lsgwps:wp84 is not listed on IDEAS
  5. William Easterly & Tobias Pfutze, 2008. "Where Does the Money Go? Best and Worst Practices in Foreign Aid," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 29-52, Spring.
  6. 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.
  7. Dollar, David & Easterly, William, 1999. "The Search for the Key: Aid, Investment and Policies in Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(4), pages 546-577, December.
  8. Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
  9. Eyckmans, Johan & Tulkens, Henry, 2003. "Simulating coalitionally stable burden sharing agreements for the climate change problem," Resource and Energy Economics, Elsevier, vol. 25(4), pages 299-327, October.
  10. Kverndokk, Snorre & Rose, Adam, 2008. "Equity and Justice in Global Warming Policy," International Review of Environmental and Resource Economics, now publishers, vol. 2(2), pages 135-176, October.
  11. TULKENS, Henri & VAN STEENBERGHE, Vincent, 2009. "“Mitigation, adaptation, suffering” : In search of the right mix in the face of climate change," CORE Discussion Papers 2009054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
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  14. Clemens Heuson & Wolfgang Peters & Reimund Schwarze & Anna-Katharina Topp, 2012. "Which mode of funding developing countries’ climate policies under the post-Kyoto framework?," Discussion Paper Series RECAP15 004, RECAP15, European University Viadrina, Frankfurt (Oder).
  15. Karen Pittel & Dirk Rübbelke, 2013. "Improving Global Public Goods Supply through Conditional Transfers - The International Adaptation Transfer Riddle," CESifo Working Paper Series 4106, CESifo Group Munich.
  16. Buob, Seraina & Stephan, Gunter, 2011. "To mitigate or to adapt: How to confront global climate change," European Journal of Political Economy, Elsevier, vol. 27(1), pages 1-16, March.
  17. Hong, Fuhai & Karp, Larry, 2012. "International Environmental Agreements with mixed strategies and investment," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 685-697.
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  20. Lawrence H. Goulder & Roberton C. Williams, 2012. "The Choice Of Discount Rate For Climate Change Policy Evaluation," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-18.
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  22. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  23. Hong, Fuhai & Karp, Larry, 2012. "International Environmental Agreements with mixed strategies and investment," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 685-697.
  24. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  25. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
  26. Samuel Fankhauser, 1994. "The Social Costs of Greenhouse Gas Emissions: An Expected Value Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 157-184.
  27. Scott Barrett, 2008. "Climate treaties and the imperative of enforcement," Oxford Review of Economic Policy, Oxford University Press, vol. 24(2), pages 239-258, Summer.
  28. Schelling, Thomas C, 1992. "Some Economics of Global Warming," American Economic Review, American Economic Association, vol. 82(1), pages 1-14, March.
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