EQUITY, ETHICS, AND THE
ECONOMICS OF CLIMATE CHANGE
Nicholas Stern
Chair of the Grantham Research Institute on Climate Change and the Environment,
Chair of the Centre for Climate Change Economics and Policy,
IG Patel Professor of Economics & Government,
President of the British Academy
London School of Economics and Political Science
LSE 400 Lecture
6 March 2015
Structure
1. Climate change: sciences and social sciences interwoven
2. Need for change: scale, risks, dangers of delay
3. Ethics and equity aspects of climate change
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Climate change starts and ends with humans
• Understanding the relevant processes:
–
Human activity to emissions of greenhouse gases
(GHGs);
–
Emissions (‘flows’) to increased concentrations
(‘stocks’). Ratchet effect because CO2 long-lived
and difficult to extract;
–
Increased concentrations to increased
temperatures and climate change;
–
Climate change to human impacts.
• All links in the chain subject to uncertainty.
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The science shapes economics and politics
• The structure of the science embodies four major difficulties
for understanding, analysing and setting public policy:
– Immense scale,
– Large risk/uncertainty,
– Long lags,
– ‘Publicness’ of the causes and effects.
• Key implications for economics and analysis: about
management of immense risk.
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Many subjects matters
• Analysis of climate change requires:
– Sciences: physics, engineering, chemistry, biology,
medicine…
– Social sciences: Economics, economic history, political
science, philosophy, law, psychology…
• In nerdy language, the problem embodies a stochastic,
non-marginal, infinite time-horizon CBA.
• And it is a complex, international, inter-temporal, intergenerational, collective action problem under
uncertainty.
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Structure
1. Climate change: sciences and social sciences interwoven
2. Need for change: scale, risks, dangers of delay
3. Ethics and equity aspects of climate change
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The science is robust and GHG concentration rising rapidly
Climate science is built on two centuries’ of theory and evidence
•
•
•
•
1820s: Joseph Fourier recognized the atmosphere was trapping heat.
1860s: John Tyndall discovered the gases that were doing so – the GHGs.
End of 19th century: Svante Arrhenius provided calculations of the possible
size of effects.
1940s: Walter Elsasser explained that GHG molecules oscillate at a
frequency that interferes with the escape of infrared radiation.
CO2e concentrations now around 450ppm (Kyoto gases).
•
•
Adding CO2e at a rate of over 2.5ppm per year (likely to accelerate with
little or weak action).
This is up from 0.5ppm per year 1930-1950, 1ppm 1950-1970 and 2ppm
1970-1990.
Inaction could take us to 750ppm CO2e over a century. Strong possibility
of eventual temperature increase of more than 4°C (or more than 5°C)
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The risks are unprecedented for homo sapiens
Damage from climate change intensifies as the world gets warmer:
•
Already at 0.8°C at edge of experience of Holocene and civilisation of
last few thousand years. Seeing strong effects but small relative to what
we risk.
Temperature increase of 4 or 5°C or more not seen for tens of millions of
years (homo sapiens, 250,000 years):
•
Likely be enormously destructive, including much more intense extreme
events.
•
Deserts, coastlines, rivers, rainfall patterns: the reasons we live where
we do, would be redrawn.
•
Potential cause of migration of hundreds of millions, perhaps billions, of
people around the world: likelihood of severe and sustained conflict.
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What to do to hold warming below 2°C
• Necessary emissions path for 50-50 chance of 2°C:
– under 35Gt in 2030; under 20Gt in 2050; zero by end
century.
• Can do a little more earlier and a little less later and vice
versa but shape of feasible paths similar, and costly to catch
up if postpone action.
• Necessary path likely to require:
– zero emissions from electricity around mid-century.
– Zero total emissions by the end of century.
– Negative in major sectors well before end of century.
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Why the next 15 years are critical
Source: New Climate Economy
http://newclimateeconomy.report/overview/
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What we cannot cover here: all fascinating and
all are important
• Technology options – renewables, energy efficiency.
• Innovation – tipping points, spill-overs.
• Market failures – the six key ones.
• Policies to foster the transition.
• Public-private interaction.
• International and regional cooperation.
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Structure
1. Climate change: sciences and social sciences interwoven
2. Need for change: scale, risks, dangers of delay
3. Ethics and equity aspects of climate change
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Ethics and Equity (I)
• Climate change gives rise to many important and complex normative
questions.
• Some approaches are difficult to apply to climate change, but all seem to
point in the same general direction: strong action to reduce emissions is
morally required.
• Fundamental issues (and many different approaches to them):
– What matters?
• Welfare or utility? Capabilities and opportunities? Rights, liberty,
justice.
– Distribution.
– Who are the relevant moral agents?
• Individuals? States? Past, present, future?
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Ethics and Equity (II)
•
•
Theories of justice:
– Rights/entitlements and duties/obligations.
– What is the basis for the rights or duties? Categorical imperative?
Production/desert? Virtue? ‘Natural rights’? Capabilities? A social contract?
Liberty – positive and negative.
– What is the proper relationship between citizen and state?
• Intra-generational issues :
– Who is entitled to produce / who bears responsibility to reduce emissions?
– Eg. #1: States responsible for historic emissions of that state. (But: from
when? Does knowledge of harm matter? Does it matter whether current
citizens are beneficiaries of historic high-carbon growth paths of their
ancestors? Many difficult empirical and normative issues).
– Eg. #2: Equal per capita entitlements (or rights) to emit? (But: rights to emit,
as opposed to development? Stocks not flows matter; redistributive role of
asset allocation; ignores history).
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Ethics and Equity (III)
• Inter-generational issues:
– Getting into specifics using one theory: public welfare
economics (consequentialist and [more narrowly] welfarist
or utilitarian).
– How can we compare the value of something to people
today vs its value to future people?
– Discounting:
• Discounting future goods (inter-temporal valuations of
relative standards of living).
• Discounting future welfare (pure-time discounting).
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Ethics and Equity (IV)
Inter-temporal valuations of relative standards of living
• How do we value (today) goods consumed in the future?
Should we discount the value of future goods because “people
in the future will be richer”? And which goods matter?
• Relative value of unit of good i at time t relative to good i is
now discount factor for good i and time t. Discount rate is
proportional rate of fall of discount factor. Both factor and rate
depend on i and t.
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Ethics and Equity (V)
• Some argue that discount rates can be ‘read-off’ from market
interest rates or rates of return. But:
– The discount factors and the discount rates depend on the
path and the generation: e.g., if future generations are
assumed to be much richer than us, an increment to them
can be argued to have a small social value. As climate
change involves looking at very different future paths it is
a mistake to use a marginal method around a given growth
path.
– Must also take care with the multi-good nature of this
problem: different discount rates for consumption and the
environment. Both rates may be negative in bad
outcomes.
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Ethics and Equity (VI)
• There is no market on which one can ‘read off’ anything
similar to a revealed collective preference or appropriate rate
for 100 years or more.
– Many markets are for private agents and limited term.
– Such markets that exist are imperfect.
– We need discount rates for a range of goods/service.
– For “riskless”, long-term, public markets, discount rates
are often found to be around 1-2% but need to treat with
caution (need riskless rates, because risk/uncertainty
generally handled separately in calculation).
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Ethics and Equity (VII)
Better approach: Structured thought experiment
• For example if specify u’(c) = c -ᶯ can discuss ᶯ in
terms of readiness to make transfer A to B. For
example, consider if cA = 2cB. If ᶯ = 2 then would be
ready to do so even if “lost” 75% en route.
• Inferring from government or individual action is
very problematic – many different numbers emerge
across a very big range.
• Have to guess what model of the economy may be in
mind of “ decision maker” whose values are being
inferred.
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Ethics and Equity (VIII)
Pure-time discounting
• Pure-time discounting is to give the welfare of future people
less weight (irrespective of income) purely because some
parts of their lives lie in the future.
• It is discrimination by date of birth.
– Could such discrimination, i.e. on the basis of (lack of)
temporal proximity be morally justified?
– What about an analogy to physical proximity? Do we owe
lesser moral duties to people further away from us
physically (e.g. those outside our “community”)? Could
you construct an argument for inter-temporal
discrimination?
– I suggest you would find it difficult to do so convincingly.
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Key lessons
• Work to understand the empirical issues of the problem at hand, Here,
that is the basic science of climate change and its complexities: first part
of lecture.
• Ensure the analytical framework does justice to the underlying empirical
matters (don’t try to shoehorn problems into frameworks just because
we have the frameworks).
• Public policy-making is also a normative enterprise, don’t try to pretend
that it is not; don’t dodge the ethics. Be transparent about normative
assumptions; recognise that they are contestable; and be prepared to
discuss them.
• Applying different moral and political-philosophical theories and
approaches to a problem may yield similar conclusions, suggesting the
conclusions may be more robust than if otherwise (e.g. climate change).
• Many complex issue today require the perspectives and expertise of very
many disciplines – learn to understand and engage with other disciplines
and perspectives.
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The road to Paris
• A chance to build understanding not only of threats and risks but of the
great opportunities that lie in the transition to the low-carbon economy.
Equity must be centre stage.
• The next two decades will see rapid structural transformation of the
world economy; this transformation coinciding with both very rapid
technological change and a decisive period for the transition to the lowcarbon economy represent a crucial moment. We can use it or lose it.
• If we take it we lay the foundations for the future and accelerate the
dynamism for the rest of the century.
• These understandings plus the construction of a collaborative and
dynamic approach can bring success in Paris in 2015.
• It is possible to rise to the two defining challenges of our century –
overcoming poverty and managing climate change. If we fail on one, we
fail on the other.
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