Library Header Image
LSE Research Online LSE Library Services

The climate beta

Dietz, Simon ORCID: 0000-0001-5002-018X, Gollier, Christian and Kessler, Louise (2018) The climate beta. Journal of Environmental Economics and Management, 87. pp. 258-274. ISSN 0095-0696

Text - Published Version
Available under License Creative Commons Attribution.

Download (731kB) | Preview

Identification Number: 10.1016/j.jeem.2017.07.005


How does climate-change mitigation affect the aggregate consumption risk borne by future generations? In other words, what is the ‘climate beta’? In this paper we argue using a combination of theory and integrated assessment modelling that the climate beta is positive and close to unity for maturities of up to about one hundred years. This is because the positive effect on the climate beta of uncertainty about exogenous, emissions-neutral technological progress overwhelms the negative effect on the climate beta of uncertainty about the carbon-climate-response, particularly the climate sensitivity, and the damage intensity of warming. Mitigating climate change therefore has no insurance value to hedge the aggregate consumption risk borne by future generations. On the contrary, it increases that risk, which justifies a relatively high discount rate on the expected benefits of emissions reductions. However, the stream of undiscounted expected benefits is also increasing in the climate beta, and this dominates the discounting effect so that overall the net present value of carbon emissions abatement is increasing in the climate beta.

Item Type: Article
Official URL:
Additional Information: © 2017 The Authors
Divisions: Grantham Research Institute
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Date Deposited: 20 Jul 2017 10:16
Last Modified: 14 Jun 2024 22:15
Projects: ES/K006576/1
Funders: Economic and Social Research Council

Actions (login required)

View Item View Item


Downloads per month over past year

View more statistics