Environmental Impact Assessment

Inequality Aversion for Climate Policy

“…Optimal climate policy and SCC estimates based on a utilitarian welfare function or (equivalently) using equity weights are largely derived using (1) as default or important benchmark (Azar and Sterner, 1996;Anthoff et al, 2009;Dennig et al, 2015;Lessmann et al, 2015;Adler et al, 2017;Anthoff and Emmerling, 2019;Astrid and Bünger, 2019). Our purpose is to inform the academic community and policy-makers of the considerations involved in choosing a value for η.…”

“…The Stern Review (Stern, 2007) had a fairly extensive discussion of equity principles but did not actually use intratemporal inequality aversion for its main headline results. The Umweltbundesamt in Germany officially adopted an equity-weighted SCC that also uses an inequality aversion value of one (Astrid and Bünger, 2019).…”

“…The insights from this literature have not been confined to academia but have been used in high-stakes climate policy applications. For example, both the original UK SCC estimate (Clarkson and Deyes, 2002) and the estimate from the German Umweltbundesamt (Astrid and Bünger, 2019) have incorporated inequality aversion in their approach by using equity-weighted SCC estimates. Any such equity-weighting approach must make a choice regarding the level of inequality aversion to be used in the analysis, and previous papers have shown that the choice of inequality aversion can be as important as the much-discussed choice of discount rate (Dennig et al, 2015).…”