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Executive Summary

Normative Criteria for Climate Change Policy Analysis

February 2000
By Richard Howarth

Studies conducted by the National Science Academy and the Intergovernmental Panel on Climate Change (IPCC) have found that global climate change is occurring and that it poses a massive threat to planetary health. Moreover, the IPCC study linked at least some of the rise in world temperature to human activities, such as the industrial emission of carbon dioxide. To complement the scientific community's effort, over 2,500 economic scholars have themselves issued a consensus statement arguing that controlling greenhouse gas emissions through carbon taxes or emission permits will minimize --and may even reverse--the costs of climate protection to the economy.

If global climate change exists and if we understand the best way to reduce the greenhouse gasses which cause it, to what extent should we implement such a reduction policy? How much should we sacrifice today in order to protect the future?

This growing consensus enables us now to confront the moral side of climate protection: If global climate change exists and if we understand the best way to reduce the greenhouse gases which cause it, to what extent should we implement such a reduction policy? How much should we sacrifice today in order to protect the future? Professor Richard Howarth, who teaches environmental economics at Dartmouth College, examines this critical concern in his paper "Normative Criteria for Climate Change Policy Analysis."

As Professor Howarth illustrates, the amount by which society reduces greenhouse gas emissions depends on the trade-off that exists between present and future costs. On the one hand, refusing to reduce emissions spares us the costs of paying for pollution, but imposes costs on future generations in the form of more severe climate change. On the other hand, reducing greenhouse gas emissions today means that we accept the present costs of obligating investors and workers to alter how they produce goods and compelling consumers to change their buying patterns. The problem of global warming thus exemplifies the challenge that society faces when fulfilling any moral responsibility to the future.

Professor Howarth examines this moral dilemma from three different perspectives: cost-benefit analysis, classical utilitarianism, and the precautionary principle. Although the terms sound complicated, the underlying idea is simple. In deciding the amount by which businesses ought to reduce greenhouse gas emissions, society will either sacrifice just enough to protect itself and perhaps the next generation (cost-benefit analysis), or it will sacrifice somewhat more in order to equalize the costs that current and future generations will bear (classical utilitarianism), or it will sacrifice even more in the present in order to guarantee a habitable planet for future generations (the precautionary principle). The choice of moral "position" greatly influences the course of action that we must take today.

Three Possible Approaches

The central idea behind cost-benefit analysis is that government ought to adopt those public policies whose total benefits to individuals outweigh the total costs. Cost and benefits for different individuals are simply summed up as if it did not matter to whom they accrue. If the total is positive, the government could in theory compel those who benefit from the policy to compensate those who are harmed. If initial losers were compensated for their losses, winners would still gain from the policy; hence society is made better off in some sense. Because cost-benefit analysis assumes that receiving, say, a dollar's worth of benefit in the future is worth less than receiving a dollar's worth of benefits today, some analysts question the morality of cost-benefit analysis since it discounts benefits and costs for future generations. At any realistic discount rate, large benefits more than 50 years from now are worth next to nothing today.

A second normative framework, classical utilitarianism, guards against this ethical lapse by regarding the interests of all citizens across time as being equal. Under classical utilitarianism, an "impartial spectator" makes the decisions, seeking to promote the interests of all individuals (alive or yet to be born) in a fair-minded way. If we believe that our descendants deserve a healthy environment just as much as we deserve to profit from inexpensive use of the atmosphere, then we ought to adopt classical utilitarianism. Within this framework, as compared with cost-benefit analysis, significantly more sacrifice is required of the current generation.

Does our concern for social equity extend across time? If so, how do we balance between present and future generations? Our answer to these questions greatly affects the actions we take (or don't take) to control climate change.

Despite the equality and moral sensibility of this approach, however, a serious ethical problem remains. The global climate is so complex and delicate that it may be impossible to predict the full damages of increases in average temperature beyond some threshold. For example, there are no credible studies of the change in global climate that would result from more than a doubling of current carbon dioxide levels. The possibility for catastrophic climate-related events always exists, and may increase enormously if we change the climate "too much." If one acknowledges the possibility of catastrophic damage due to inadequate information, an ethical response would be to hedge our bets and adopt a precautionary principle. Following this ethical principle, the current generation would want to reduce emissions even more than under classical utilitarianism.

The Results

Using a model to exemplify the consequences of our moral choice, Professor Howarth estimates that adopting a cost-benefit analysis approach would lead us to sacrifice relatively little now in favor of greater future costs. By 2105 there would be a carbon tax of $56/ton-carbon. The world's mean temperature would increase by 7.4 percent C relative to the pre-industrial norm. In contrast, classical utilitarianism would lead us to adopt a carbon tax of $419/ton-carbon by 2105. Mean temperature would rise by only 3.3 percent C. Adopting a precautionary principle would obligate us to adopt a carbon tax of $662/ton-carbon by 2105. The increase in mean temperature would be 2.9 percent C.

Conclusion

"Normative Criteria for Climate Change Policy Analysis" encourages us to examine the very purpose of society. Does society exist solely to balance between the enjoyment and use of those alive today, or do we have a collective obligation beyond our own lifetimes? Does our concern for social equity extend across time? If so, how do we balance between present and future generations? Our answer to these questions greatly affects the actions we take (or don't take) to control climate change. They are not scientific or economic questions, but moral questions that test the human spirit.

If you would like to read more about the economic impacts of climate change protection, please read "Burdens and Benefits of Environmental Tax Reform" by J. Andrew Hoerner.

Download "Normative Criteria for Climate Change Policy Analysis" (37 pp. / 181 kb)