Transcript Utility as the informational basis of climate change strategies, and

Utility as the informational
basis of climate change
strategies, and some
alternatives
Simon Dietz, LSE
This paper
 The question:
 What role should economics play in evaluating climate
change strategies?
 Main points:
 Most focus, and associated controversy, has been on
how to weight the consumption of individuals living in
different ‘locations’, especially in time (i.e. discounting)
 But this is unnecessarily narrow
 An equally, if not more, important ethical judgement
comes earlier, when we take utility to be the only
relevant measure of human wellbeing
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July 2010
Efficient climate policy
The standard applied economic
approach to climate change, I
 Maximise the expectation of a
utilitarian social welfare function over
time
 Choose a utility discount rate
 Specify utility as a CRRA function of
aggregate consumption, adjusted for the
costs and benefits of climate change and
of GHG emissions reductions
 Specify a representative individual for
each region and multiply their utility by
an estimate of the regional population
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July 2010
The standard applied economic
approach to climate change, II
Technology, capital,
population
Emissions
Atmospheric concentrations of
GHGs
Radiative forcing and global
climate
Regional climate and weather
 Construct a fullscale ‘integrated
assessment
model’ (IAM)
that couples the
economic and
climate systems
Environmental impacts (e.g.
crops, forests, ecosystems)
Socio-economic impacts
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July 2010
What does the typical IAM look
like?
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Standard
Ramsey/Cass/Koopmans model
of economic growth, which
produces emissions
Simple climate model
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Damages
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Model in itself
But calibrates model parameters
on other climate models that are
much more complex
Include production losses, and
the consumption equivalent of
other welfare changes (e.g.
leisure)
Adaptation to climate change is
implicit in the ‘damages function
‘Mitigation’

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July 2010
Divert output to cutting
emissions
What is the typical finding?
Source: Nordhaus (2008)
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July 2010
Where have the disagreements
been?
 Predictions about the (undiscounted)
costs and benefits of adaptation and
mitigation
 Parameterisation of the utility and
social welfare functions
 Utility discount rate
 Elasticity of the (constant) marginal
utility of consumption
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July 2010
Interdependence as the
strength of the economic
approach
What might there be to commend the
economic approach? I
 Sen (1987) on positive economics:
 “The fact that famines can be caused even in
situations of high and increasing availability of food
can be better understood by bringing in patterns of
interdependence which general equilibrium theory
has emphasized and focused on.” (p9)
 Examples in the context of climate change
 Decentralised market incentives
 The ‘rebound’ effect
 Adaptation to climate-change induced moves in
relative prices
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July 2010
What might there be to commend the
economic approach? II
 Broome (1999) on normative economics:
 “we have to balance the interests of future people
against the interests of presently living people, fun in
retirement against fun in youth, the wellbeing of the
deprived against the wellbeing of the successful or
lucky…These are places where the scarcity of
resources forces a society to weigh up alternative
possible uses for these resources, and economics
claims to be the science of scarcity.” (p1-2)
 i.e. think comparatively
 Examples in the context of climate change
 Discounting
 Compare returns to investing in clean technology
with returns to investing in e.g. aids prevention or
primary schooling
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July 2010
Utility as an informational
basis for climate change
strategies
The wide-ranging effects of
climate change
 Climate change is likely to have wideranging direct effects, on:
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Water supply
Food availability
Land availability
Health
Natural ecosystems
 Which will in turn have wide-ranging,
indirect economic and social effects
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July 2010
What we climate-change
economists do, and our critics
 All of these effects can be modelled, as long
as we can monetise them
 Concerns that have been aired:
 Baseline wellbeing is aggregate consumption;
narrow view of where people start from
 Monetary valuation of e.g. species loss, risk of
environmental conflict etc. is very difficult
 Approach does not get right the distinction
between vital needs and instrumental needs
 ~ approach does not single out inviolable
welfare rights
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July 2010
Just keep maximising, but…?
Resolution I: CBA with side
constraints
 Maximise discounted utility subject to side constraints
(e.g. Alan Randall) predicated on moral acceptability
 In an environmental context, ~ Safe Minimum
Standard (SMS) of conservation
 Currently global climate negotiations are aiming at a
limit of 2°C global warming, which is a form of SMS
 But:
 What happens when the side constraints are in
conflict? i.e. only works when set of possible
strategies is not empty
 Also, runs the risk that side constraints are not
rigorously justified (see origins of 2°C target)
 Anyway, if CBA is broken, why not try to fix it?
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July 2010
Resolution II: formal but pluralistic
evaluation of climate change
 Generalise notion of utility as a function of
a set of determinants of human wellbeing,
with weights that are not known a priori
 On the set of determinants, e.g. Rawls’
primary goods; Sen’s capabilities
 Use partial aggregation to identify the
range of weights over which the
appropriate climate strategy is clear
 Question: don’t we in effect do that
already?
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July 2010
Current practice
Source: IPCC
(2007)
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July 2010
Current practice
 As embodied by e.g. the IPCC is:
 Informal
 And its dimensions of evaluation are
rather ad hoc
 Trouble is, there is a reason for this:
 It is not easy to trace through the
impacts of climate change to what
ultimately matters to human wellbeing
SSCW, Moscow
July 2010
Thank you
Simon Dietz, LSE