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Representation of different ethical
frameworks in integrated assessment models
David Anthoff University of Michigan
Outline
• Taxonomy and some examples from the literature • Equity weigh:ng • Outlook
Taxonomy
• Pareto improvements/efficiency • Self enforcing • Ethics
A
B BAU
“Harmonized tax”
Transfer
A
B BAU
“Harmonized tax”
Transfer
Quan:ty: 2°
Quan:ty: ? Bergstrom and Cornes (1983)
Complica:on 1
A
B BAU
“Harmonized tax”
Transfer
Complica:on 2
“Harmonized tax”
Differen:ated tax
Chichilnisky and heal (1994)
Complica:on 2
Shiell (2003)
Complica:on 2
BAU
Overlapping genera:ons model
Complica:on 3
Ethics
• Issue specific • Comprehensive
USA EU China …
2010 5 7 3 …
2011 6 8 6 …
2012 8 9 5 …
… … … … …
USA EU China …
2010 5 7 3 …
2011 6 8 6 …
2012 8 9 5 …
… … … … …
USA EU China …
2010 5 7 3 …
2011 6 8 6 …
2012 8 9 5 …
… … … … …
Costs
Benefits
Net Benefits
Issue specific
USA EU China …
2010 Ytr Ytr Ytr …
2011 Ytr Ytr Ytr …
2012 Ytr Ytr Ytr …
… … … … …
"↓$% = Y ↓$% + '↓$% − (↓$%
Comprehensive
Ethics
• Consequen:alism • U:litarian framework/equity weigh:ng/inequity aversion (large literature)
• Cost-‐effec:veness (large literature) • Burden sharing (large literature), no-‐envy (Varian, 1974; Tol, 2001)
• Rule based ethics (deontological ethics) • Kan:an (Tol, 2001)
• Virtue ethics
Issue specific Comprehensive
Complications
• Time • Risk
Outline
• Taxonomy and some examples from the literature • Equity weigh=ng • Outlook
Previous Work • Op:mal taxa:on
• Sandmo (2006)
• Equity weights • Azar and Sterner (1996), also Azar (1999), Fankhauser, Tol and Pearce (1997), Hope (2008), Anthoff, Hepburn and Tol (2009), Anthoff and Tol (2010)
• RICE, PAGE and FUND: Nordhaus (2011), Hope (2011)
• Real World • DEFRA studies • Stern Review (?)
5000 10000 15000 20000 25000 30000
7
8
9
10
Δ) Δ)
Δ*↓%
Δ*↓+
rich
poor
consump:on
u:lity
*())= ln ) ./012%/=*()↓% )+*()↓+ )
For same Δ): Δ*↓+ >Δ*↓%
Simple Model with transfers
█■(↓%↑′ (5↓%↑∗ )&=&'↓%↑′ (5↓%↑∗ + 5↓+↑∗ )+ '↓+↑′ (5↓%↑∗ + 5↓+↑∗ )@=&&=@(↓+↑′ (5↓+↑∗ )&=&'↓%↑′ (5↓%↑∗ + 5↓+↑∗ )+ '↓+↑′ (5↓%↑∗ + 5↓+↑∗ )
Carbon tax
Carbon tax
Simple Model without transfers
█■(↓%↑′ (5↓%↑∗ )&=&⏞9↓%↑∗ /9↓+↑∗ ┴>1 '↓%↑′ (5↓%↑∗ + 5↓+↑∗ )+ 9↓%↑∗ /9↓+↑∗ '↓+↑′ (5↓%↑∗ + 5↓+↑∗ )@≠&&@(↓+↑′ (5↓+↑∗ )&=&9↓+↑∗ /9↓%↑∗ '↓%↑′ (5↓%↑∗ + 5↓+↑∗ )+ ⏟9↓+↑∗ /9↓%↑∗ ┬<1 '↓+↑′ (5↓%↑∗ + 5↓+↑∗ )
Carbon tax
Carbon tax
1 -‐
+ 1
.=∑$↑▒∑%↑▒@↓$% A((↓$% )(1+B)↑−$
CD(($,E)=∑F=$↑G▒∑%↑▒H↓F,% CI↓F,% ($)
Roughly Marginal Abatement Cost
or Carbon Tax Marginal Damage Cost
Discount Factor
Marginal Damage of Emission
1 tCO2
US WEU CHI …
2010
2011
2012
2013
2014
2015
2016
…
CI↓2013,AJ (2012)
CI↓2016,(KL (2012)
CD(($,E)=∑F=$↑G▒∑%↑▒1/(1+B+MN↓$ )↑$ CI↓F,% ($)
Optimal Taxes - Efficiency Marginal Abatement Cost
or Carbon Tax
Marginal Damage Cost Ramsey Discount Factor
Social Cost of Carbon
Same for all Regions
Ramsey Discount Rate Rich Country Poor Country
Present
Future
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
CD(($,E)= [9($,E)]↑M ∑F=$↑G▒Q↑F−$ ∑%↑▒(1/9↓F,% )↑M CI↓F,% ($)
Optimal Taxes – No Transfers Marginal Abatement Cost
or Carbon Tax
Marginal Damage Cost
Higher for rich regions Lower for poor regions Same for all regions
Modified Discount Rate Rich Country Poor Country
Present
Future
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
20000 40000 60000 80000 1000000.00002
0.00004
0.00006
0.00008
0.00010
0.00012
Optimal taxes in 2005
2 2 4 5 8 8 9 11 12 12 13
80
96
119
137
179
0
20
40
60
80
100
120
140
160
180
200
SSA SAS SIS NAF FSU SEA MDE CAM CHI EEU LAM ANZ CAN WEU USA JPK
$/tC
Transfers
No transfers
FUND 3.4; η=1; ρ=1%; USD 1995
Mitigation- 2050
0%
10%
20%
30%
40%
50%
60%
ANZ CAM CAN CHI EEU FSU JPK LAM MDE NAF SAS SEA SIS SSA USA WEU Total
emission redu
c:on
from
BAU
Transfers No transfers
FUND 3.4; η=1; ρ=1%; USD 1995
Mitigation - 2100
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ANZ CAM CAN CHI EEU FSU JPK LAM MDE NAF SAS SEA SIS SSA USA WEU Total
emission redu
c:on
from
BAU
Transfers No transfers
FUND 3.4; η=1; ρ=1%; USD 1995
Business as usual warming: 3.17
U=lity calibra=on No transfers Transfers
η=1
prtp=0.1% 2.41 2.34
prtp=1.0% 2.92 2.91
prtp=3.0% 3.12 3.12
η=1.5
prtp=0.1% 2.65 2.75
prtp=1.0% 2.96 3.03
prtp=3.0% 3.13 3.13
η=2
prtp=0.1% 2.69 2.98
prtp=1.0% 2.95 3.09
prtp=3.0% 3.13 3.14
Optimal Taxes in 2005
0.6 1.1 0.1 0.4 0.8 1.3 0.4 0.3 7.5
0.1 0.2 0.1 0.1 1.5 0.9 0.3 0
20
40
60
80
100
120
140
160
180
200
SSA SAS SIS NAF FSU SEA MDE CAM CHI EEU LAM ANZ CAN WEU USA JPK
$/tC
Transfers
No transfers
Self-‐Interest
FUND 3.4; η=1; ρ=1%; USD 1995
Outline
• Taxonomy and some examples from the literature • Equity weigh:ng • Outlook
Outlook
• Implemen:ng exis:ng economic theory • Extend “standard” u:litarian framework • Apply “non-‐standard” ethics to climate change
• On a theore:cal level match it to quan::es in IAMs • On a prac:cal level see whether it maters for policy choice
• Open ques:ons • Does this pass the philosophers laugh test? • Non coopera:ve game theory (?)
Thank you! anthoff@umich.edu
www.david-‐anthoff.com
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