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Science and Values in Climate Risk Management Speaker Series: Kenneth Gillingham

Welfare maximizing climate policy and the role of interregional redistribution (joint work with Simon Lang)
by David Price Oct 08, 2020
When Oct 22, 2020
from 4:00 PM to 5:00 PM
Where Virtual (Zoom)
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Welfare Maximizing Climate Policy
and the Role of Interregional Redistribution

Kenneth Gillingham

Kenneth Gillingham

Associate Professor of Economics 
Yale School of the Environment

Abstract: Welfare weights which assign a greater weight to the welfare of the rich are commonly used in regionally disaggregated climate-economy models. This paper considers two modelling alternatives which give equal weight to the welfare of all people living at particular time in order to identify the climate policy path which maximizes global human welfare. Both alternatives call for more rapid emission reductions than the conventional approach, and if emission reductions in developing countries are financed by developed countries, the stringency of the welfare maximizing climate policy path increases further.

Negishi welfare weights are commonly used in regionally disaggregated integrated assessment models (IAMs) to prevent unrealistically high interregional transfers and to yield a globally uniform carbon price, which is achieved by assigning a greater weight to the welfare of rich individuals. However, the practice of using Negishi welfare weights in IAMs has been criticized from both ethical and theoretical perspectives. This paper considers two modelling alternatives to the Negishi-weighted approach; both remove the Negishi weights from the social welfare function and constrain redistribution directly via a variable exogenous constraint on interregional transfers. One alternative allows for differentiated carbon prices across regions, while the other alternative imposes the additional constraint of globally harmonized carbon prices. Both alternatives yield a higher optimal mitigation effort than the Negishi solution in numerical simulations using a modified version of the RICE model. The differentiated price optimum results in the most stringent climate policy. Non-conditional interregional transfers from rich to poor regions play a minor role in altering the welfare maximizing climate policy path relative to zero transfers. However, if interregional transfers are directly used to finance mitigation in recipient regions, the stringency of the welfare maximizing climate policy increases considerably. For instance, the welfare maximizing uniform carbon price in 2025 roughly doubles for a total transfer of $100 billion/year, which developed countries agreed to mobilize at COP21 in Paris.


Kenneth Gillingham is an Associate Professor of Economics at the Yale School of the Environment. In 2015-2016 he served as the Senior Economist for Energy and the Environment at the White House Council of Economic Advisers. He has published widely on climate policy, and consumer decisions and policy in transportation, energy efficiency, and renewable energy. He was a Fulbright Fellow in New Zealand and has also worked at Resources for the Future, the California Air Resources Board, and Pacific Northwest National Laboratory. He received a Ph.D. and two M.S. degrees from Stanford, and an A.B. in Economics and Environmental Studies from Dartmouth College.


The Science and Values in Climate Risk Management Speaker Series hosts invited speakers to generate discussion bridging the scientific and ethical sides of climate change research. The speakers will present new ideas designed for an interdisciplinary audience.

This series is organized by the Center for Climate Risk Management and the Climate and Sustainability Ethics Initiative in the Rock Ethics Institute, which is convened by Casey HelgesonKlaus Keller, and Nancy Tuana.

This talk will be presented as a Zoom webinar. PLEASE REGISTER BY CLICKING HERE!