The climate beta
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 theory and integrated assessment modelling that the climate beta is positive and close to unity, because the effect of uncertainty about exogenous, emissions-neutral technological progress overwhelms that of
uncertainty about the carbon-climate-response and the damage intensity of warming. Mitigating climate change therefore has no insurance value to hedge the aggregate consumption risk borne by future generations. This 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.
Research programme
Future generations and social justice
Keywords
DICE models discounting risk
