Equitable cost-benefit analysis of climate change policies

The literature of welfare-maximising greenhouse gas emission reduction stra tegies pays remarkably little attention to equity. This payer introduces th ree ways to consider efficiency and equity simultaneously. The first method , inspired by Kant and Rawls, maximises net present welfare, without intern ational cooperation; as if all regions share the fate of the region affecte d worst by climate change. Optimal emission abatement varies greatly depend ing on the spatial and temporal resolution, that is, the grid at which 'max imum impact' is defined. The second method is inspired by Varian's no-envy. Emissions are reduced so as to equalise total costs and benefits of climat e change over all countries of the world and over all time periods. Emissio n reductions are substantial. This method approximately preserves the inequ ities that would occur in a world without climate change. The third method uses non-linear aggregations of welfare (the utilitarian default is linear) in a cooperative setting. This method cannot distinguish between sources o f inequity. The higher the aversion to inequity, the higher optimal greenho use gas emission reduction. (C) 2001 Elsevier Science B.V. All rights reser ved.