Integrated assessment models of climate and the economy provide estimates of the social cost of carbon and inform climate policy. We create a variant of the Regional Integrated model of Climate and the Economy (RICE)-a regionally disaggregated version of the Dynamic Integrated model of Climate and the Economy (DICE)-in which we introduce a more fine-grained representation of economic inequalities within the model's regions. This allows us to model the common observation that climate change impacts are not evenly distributed within regions and that poorer people are more vulnerable than the rest of the population. Our results suggest that this is important to the social cost of carbon-as significant, potentially, for the optimal carbon price as the debate between Stern and Nordhaus on discounting.T he most prominent debate on cost-benefit evaluation of climate policy has been on the discount rate (see, e.g. refs. 1-4).* One of the important principles this debate has highlighted is that the effect of climate impacts are discounted when they are borne by more affluent-future-generations. † However, despite Schelling's early remarks (9) that this principle should also apply across contemporaries with different levels of affluence, the interaction between climate impacts and economic inequality has only been studied by looking at inequality between regions (10, 11). This is potentially an important oversight, because in leading cost-benefit integrated assessment models (IAMs) much of the poverty associated with high levels of vulnerability is masked by regional averaging of economic variables. ‡ In light of this, we modify a leading climate-economy model, Regional Integrated model of Climate and the Economy (RICE), to include what is known about economic inequality within regions and countries. This representation of economic inequality allows us to investigate the effect on optimal policy of different assumptions about the distribution of damages by economic strata. § When subregional differences are modeled in this way, several policy-relevant aspects of the model can change dramatically even when other assumptions and parameters from RICE are held constant. As we show below, even when RICE regional damage functions are used to establish the damage level of each region, the distribution of damage within regions can cause some members of future generations to be less affluent than their current counterparts. { If the distribution of damage is less skewed to high incomes than the distribution of consumption, then weak or no climate policy will result in sufficiently large damages on the lower economic strata to eventually stop their welfare levels from improving, and instead cause them to decline. This paints a different picture from the standard narrative in leading cost-benefit IAMs, where regional average consumptions continue to grow even under business-as-usual (BAU).The implications for policy recommendations are striking, both by the standard utilitarian metric and by metrics of sustainability (18) and just...
SignificanceWe investigate how future population growth is relevant to climate change policy. The answer depends importantly on ethical questions about whether our ultimate goal should be to increase the number of people who are happy or rather to increase the average level of people’s happiness. We calculate the best (optimal) emissions reduction pathway given each of these two different goals that society might have and calculate how much cheaper it would be to avoid dangerous interference with the climate given a smaller rather than a larger population. We also show that whether it is ultimately better to have a smaller population in response to climate change depends on which of these two goals society chooses.
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Integrated assessment models (IAMs) of climate and the economy provide estimates of the social cost of carbon and inform climate policy. With the Nested Inequalities Climate Economy model (NICE) (Dennig et al. PNAS 112:15,827-15,832, 2015), which is based on Nordhaus's Regional Integrated Model of Climate and the Economy (RICE), but also includes inequalities within regions, we investigate the comparative importance of several factors-namely, time preference, inequality aversion, intraregional inequalities in the distribution of both damage and mitigation cost and the damage function. We do so by computing optimal carbon price trajectories that arise from the wide variety of combinations that are possible given the prevailing range of disagreement over each factor. This provides answers to a number of questions, including Thomas Schelling's conjecture that properly accounting for inequalities could lead the inequality aversion parameter to have an effect opposite to what is suggested by the Ramsey equation.
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