The Impacts and Costs of Climate Change Page: 37
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The Impacts and Costs of Climate Change
weights can therefore be used to explicitly recognise distributional effects within a policy's net present
value. In the case of climate change, we are trying to recognise that vulnerable societies are likely to
see significant impacts, and therefore that climate change mitigation policy will have a dis-
proportionately larger benefit to these groups. The equity weighting scheme adopted makes a very
large difference to the overall values, for example, the approach used on how to aggregate between the
winners (e.g., agriculture in Finland) and the losers (e.g. sea-level rise in the Maldives or Bangladesh)
can alter the estimates by almost an order of magnitude (i.e. by ten times).
Essentially, the more weight we put on the distribution of the impacts from climate change, the more
severe the aggregate impacts are estimated to be. As a result, the global picture depends on how we
aggregate. If we count in numbers of Euros, under some types of aggregation scheme the world as a
whole may appear to lose a little. If we count in terms of numbers of people and associated physical
damages, the losses become apparent.
There is no consensus on equity weighting approaches for climate change. There may be different
theoretically correct approaches depending on the policy perspective and application. A different
approach might be warranted from an individual member state policy perspective, as distinct from the
perspective of a global policy maker. A more detailed summary of this issue is presented below44
In a pure utilitarian framework, equity weighting is based upon the diminishing marginal utility of
consumption. Evidence on the appropriate value of the elasticity of marginal utility (s), can be found
from a variety of sources. However, no definitive guidance exists on the correct value, which can be
regarded as an ethical parameter.
A value of = 1 is commonly employed in the literature. Some commentators have highlighted that
this is not consistent with the current rate of spending on foreign aid in individual member states (e.g.
Pearce, 2003). Given current rates of foreign aid, a value of 8 closer to zero, if not negative, would
emerge. However, this does not necessarily mean such values are appropriate for (international)
climate change policy.
The appropriate course of action depends strongly on the perspective of the decision maker.
* If we take the perspective of a global decision maker, equity weighting at F < 1 may be appropriate
* If we employ a strict member state perspective consistent with MS spending in other policy areas,
particularly foreign aid, then equity weighting is difficult to justify.
There are three possible reasons why climate change and standard domestic (or European) policies
may differ in their approach to equity weighting. These are: (1) Climate change is intergenerational
and there is no reliable mechanism of intergenerational transfers; (2) It is non-marginal, so applying
the Kaldor-Hicks rule may not be wise; and (3) It is international, and there is no international taxation
system. Any policy that satisfies one of these three issues could be argued to have a claim to equity
weighting. This would include foreign aid but arguably other domestic and international policies with
international or intergenerational consequences (e.g. agricultural subsidies or biodiversity policies)a5.
Based on a short note commissioned for the study. 'Equity weighting of climate change damages: Where do we stand?'
Cameron Hepburn. St Hugh's College, Oxford University.
45 This argument does not justify climate change using equity weighting when aid decisions do not, but it presents a case for
using equity weights in both instances.
AEA Technology Environment, August 2005
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Watkiss, Paul; Downing, Tom; Handley, Claire & Butterfield, Ruth. The Impacts and Costs of Climate Change, text, September 2005; Oxford, England. (digital.library.unt.edu/ark:/67531/metadc29337/m1/48/: accessed September 22, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .