Optimal climate policy and the future of world economic development

How much should present generations sacrifice to reduce emissions today, in order to reduce the future harms of climate change? Within climate economics, debate on this question has been focused on so-called “ethical parameters” of social time preference and inequality aversion. We show that optimal climate policy similarly importantly depends on the future of the developing world. In particular, although global poverty is falling and the economic lives of the poor are improving worldwide, leading models of climate economics may be too optimistic about two central predictions: future population growth in poor countries, and future convergence in total factor productivity (TFP). We report results of small modifications to a standard model: under plausible scenarios for high future population growth (especially in sub-Saharan Africa) and for low future TFP convergence, we find that optimal near-term carbon taxes could be substantially larger. ∗Budolfson: Woodrow Wilson School and University Center for Human Values, Princeton University, Princeton, NJ 08540. Dennig: Social Science (Economics), Yale-NUS College, Singapore, 138610. Fleurbaey: Woodrow Wilson School and University Center for Human Values, Princeton University, Princeton, NJ 08540. Scovronick: Woodrow Wilson School, Princeton University, Princeton, NJ 08540. Siebert: International Research Institute for Climate and Society, Earth Institute, Columbia University, New York, NY. Spears (corresponding author): Economics and Planning Unit, Indian Statistical Institute – Delhi Centre, Delhi, India; Woodrow Wilson School, Princeton University, Princeton, NJ 08540. [email protected]. Wagner: Woodrow Wilson School and Andlinger Center for Energy and the Environment, Princeton University; International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria. We appreciate comments from participants at NEUDC, the Eastern Economic Association, the Population Association of America annual meeting, and Princeton University; errors are our own.