1 Introduction
Empirical evaluation of policies to mitigate climate change has been largely confined
to the application of discounted utilitarianism (DU). DU means that one stream of
consumption is deemed better than another if and only if it generates a higher sum
of utilities discounted by a constant per period discount factor δ, where δ is positive
and smaller than one.
In spite of its prevalence, DU is controversial, both due to the conditions through
which it is justified and due to its consequences for choice in economically relevant
situations, such as climate-change policy. As a matter of principle, DU gives less
weight to the utility of future generations and therefore treats generations in an
unequal manner. If one abstracts from the probability that the world will be coming
to an end, thereby assuming that any generation will appear with certainty, it is
natural to question whether it is fair to value the utility of future generations less
than that of the present one. This criticism has a long tradition dating back at
least as far as Ramsey (1928, p. 543), who argued that the practice of discounting
later enjoyments in comparison with earlier ones “is ethically indefensible and arises
merely from the weakness of the imagination”.
When applied to evaluating climate policies, DU means that the future utility
gains of present abatement efforts are discounted, which makes it harder for such
measures to justify their present costs. This was one of the earliest findings in the
economic literature on climate change (cf. Cline, 1992; Nordhaus, 1991).
One way of treating generations equally is to evaluate policies according to undis-
counted utilitarianism, whereby future utilities are summed without being discoun-
ted. This alternative was highlighted during the debate following the publication
of the Stern Review (2007), which, while committed to DU, applied a utility dis-
count rate of very nearly zero. However, such a criterion (or DU with a near-zero
utility discount rate) may contradict our ethical intuitions if used to evaluate all
investments, as it is most likely to impose heavy sacrifices on the present generation
for the benefit of future generations that are likely to be much better off (Arrow,
1999; Dasgupta, 2007; Mirrlees, 1967; Rawls, 1971). The reason for this weakness of
undiscounted utilitarianism is that it assigns zero relative weight to present utility
under all circumstances, i.e. even when the present is worse off than the future.
Sustainable discounted utilitarianism (SDU), proposed by Asheim and Mitra
(2010), avoids the pitfalls of DU (which is too willing to sacrifice future genera-