Weight factors in cost-benefit analysis of climate change

Equity considerations may justify the use of weight factors when estimating the costs of climate change. This paper reviews different weight factors t hat have been used in the climate economics literature. Based on a simple m odel, it is shown that although the different weight factors imply substant ially different cost-damage estimates, they actually yield the same optimal emission reductions. This paradox is explained by the fact that some of th e approaches require that also the abatement costs are weighted - and this offsets the effect of the diverging cost-damage estimates. The model is the n used to analyse the importance weighting may have on the overall cost-ben efit analysis. At present, when most of the global emissions of (fossil) CO 2 originate from the industrialised countries, the global optimal emissions are considerably lower if costs are weighted. However, the more the emissi ons in developing countries grow, the less important becomes the introducti on of weight factors in cost-benefit analysis of climate change for the glo bal emission reductions, in the model developed here. On a regional level, the introduction of weight factors continues to play an important role, imp lying substantially lower emissions in the rich region and slightly higher( !) in the poor.