The welfare properties of climate targets

Coppens, Léo and Venmans, Frank ORCID: 0000-0002-4264-6606 (2025) The welfare properties of climate targets. Ecological Economics, 228. ISSN 0921-8009

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Abstract

Two approaches are predominant in climate models: cost–benefit and cost-effectiveness analysis. Cost–benefit analysis maximizes welfare, finding a trade-off between climate damages and emission abatement costs. By contrast, cost-effectiveness analysis minimizes abatement costs, omits damages but adds a climate constraint, such as a radiative forcing constraint, a temperature constraint or a cumulative emissions constraint. We analyse the impacts of these different constraints on optimal carbon prices, emissions and welfare. To do so, we fit a model with abatement costs, capital repurposing costs (stranded assets) and technological change on IPCC and NGFS scenarios. For scenarios reaching 1.5 °C in 2100, a constraint on cumulative emissions has the best welfare properties, followed by a temperature constraint with overshoot. A forcing constraint with overshoot has insufficient early abatement and large net negative emissions later on, leading to a substantial welfare loss of $23 Trillion. As to the paths reaching 2 °C, all cost-effectiveness analysis abate too late, but the welfare impact of this dynamic inefficiency is milder. Again, a forcing constraint with overshoot scores worst. We show that large negative emissions at the end of the century are never optimal and an artefact of constraints with overshoot.

Item Type:	Article
Additional Information:	© 2024 The Author(s)
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HB Economic Theory
JEL classification:	Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters I - Health, Education, and Welfare > I3 - Welfare and Poverty > I30 - General
Date Deposited:	11 Nov 2024 11:15
Last Modified:	12 Dec 2024 04:33
URI:	http://eprints.lse.ac.uk/id/eprint/125996

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