CESifo Working Paper No. 3563

Climate Policy under Sustainable
Discounted Utilitarianism

Abstract

Empirical evaluation of policies to mitigate climate change has been largely confined to the
application of discounted utilitarianism (DU). DU is controversial, both due to the conditions
through which it is justified and due to its consequences for climate policies, where the
discounting of future utility gains from present abatement efforts makes it harder for such
measures to justify their present costs. In this paper, we propose sustainable discounted
utilitarianism (SDU) as an alternative principle for evaluation of climate policy. Unlike
undiscounted utilitarianism, which always assigns zero relative weight to present utility, SDU
is an axiomatically based criterion, which departs from DU by assigning zero weight to
present utility if and only if the present is better off than the future. Using the DICE integrated
assessment model to run risk analysis, we show that it is possible for the future to be worse
off than the present along a ‘business as usual’ development path. Consequently SDU and DU
differ, and willingness to pay for emissions reductions is (sometimes significantly) higher
under SDU than under DU. Under SDU, stringent schedules of emissions reductions increase
social welfare, even for a relatively high utility discount rate.

JEL-Code: D630, D710, Q010, Q540.

Keywords: climate change, discounted utilitarianism, intergenerational equity, sustainable
development, sustainable discounted utilitarianism.

Simon Dietz

London School of Economics and Political

Science (LSE)

UK - London WC2A 2AE

[email protected]

August 3, 2011

Dietz’s research has been supported by the Grantham Foundation for the Protection of the
Environment, as well as the Centre for Climate Change Economics and Policy, which is
funded by the UK’s Economic and Social Research Council (ESRC) and by Munich Re.
Asheim’s research is part of the activities at the Centre for the Study of Equality, Social
Organization, and Performance (ESOP) at the Department of Economics, University of Oslo.
ESOP is funded by the Research Council of Norway. We thank Cameron Hepburn, an editor,
two anonymous referees and participants at the Ulvon and EAERE conferences for helpful
comments. The usual disclaimers apply.

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