According to the IPCC climate change related damages increase substantially with global warming. Since the warming process is (most likely) caused by the anthropogenic production of greenhouse gas emissions countermeasures include mitigation of emissions and adaptation to the damages. Due to the time lag between the production of emissions and the occurrence of damages the question of intergenerational justice in bearing the costs of climate change (mitigation and damages) can be considered a decisive point. In the field of climate economics this point is generally addressed by balancing marginal abatement costs with discounted values of marginal (future) damages. As a consequence, the optimal mitigation path strongly relies on the choice of the discounting parameters. This is problematic for two reasons. First, the application of a general discount rate for all damages neglects the heterogeneous character of damages. Some damages might be easy to repair, in particular with future technology, other damages however might be irreversible and cannot be substituted at all. Second, main parameters, such as the elasticity of marginal consumption and the pure time preference are essentially normative values and their choice largely depends on the modellers’ attitude towards inter- and intragenerational justice.
In order to circumvent the problem of discounting, the presented study introduces the model of Intergenerational Equality (IE), which proposes that the proportion of climate costs to overall economic output should be equal over time. The implementation of this concept into the well-known DICE model suggests that, due to negligible climate damages to the contemporary world, mitigation efforts should be increased significantly in the near future. In fact, the IE approach suggest an even stronger reduction compared to the Stern Review.
