Climate Change and Intergenerational Well-being
in The Oxford Handbook of The Macroeconomics of Global Warming
Editors: Lucas Bernard, and Willi Semmler.
Oxford University Press, 2014.
Theproblem of climate change is typically discussed as a problem of intergenerationalwell-being. Current generations are called upon to make sacrifices today for the well-being of future generations. These sacrifices arise in the form of the increased costs ofmobilizing low-carbon energy systems (such as renewable energy and carbon captureand sequestration) to cut carbon emissions and thereby reduce the buildup of climatechange in the future.The case for climate change mitigation is therefore dependent on how the well-beingof today’s generation is weighed against that of future generations. As usually discussed,this in turn hinges on the social discount rate, according to which the well-being offuture generations is weighted relative to that of those alive today. If the discount rateis high, so that future well-being is not accorded much importance relative to that ofthe current generation, then the case for investing in climate change mitigation (i.e.,the reduction of greenhouse gas [GHG] emissions) is thereby reduced. The paradox isthat even if the social discount rate is as low as 3% per annum, the weight accorded 100years in the future relative to today is a mere 5%, equal to 1 divided by (1.03) raised tothe 100th power. This would seem not to give much importance to future well-being,and therefore not to give too much importance to the calls for climate control.Of course we don’t sit very comfortably with such a conclusion. Something isn’t cor-rect about the geometric discounting operation. It may be that 3% per annum is toohigh. Some ethicists call for much lower social discount rates, even zero, to reflect…