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Equity, Development Aid and Climate Finance

  • 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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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
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Handle: RePEc:lsg:lsgwps:wp123
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  1. 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.
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  10. 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.
  11. BRECHET, Thierry & HRITONENKO, Natali & YATSENKO, Yuri, . "Adaptation and mitigation in long-term climate policy," CORE Discussion Papers RP -2479, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  13. 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.
  14. Schelling, Thomas C, 1992. "Some Economics of Global Warming," American Economic Review, American Economic Association, vol. 82(1), pages 1-14, March.
  15. Udo Ebert & Heinz Welsch, 2012. "Adaptation and Mitigation in Global Pollution Problems: Economic Impacts of Productivity, Sensitivity, and Adaptive Capacity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 52(1), pages 49-64, May.
  16. 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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  23. Kverndokk, Snorre & Nævdal, Eric & Nøstbakken, Linda, 2014. "The trade-off between intra- and intergenerational equity in climate policy," European Economic Review, Elsevier, vol. 69(C), pages 40-58.
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  25. repec:lsg:lsgwps:wp84 is not listed on IDEAS
  26. 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.
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