The welfare properties of climate targets

Léo Coppens and Frank Venmans

Ecological Economics, 2025, vol. 228, issue C

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.

Keywords: Climate change mitigation; Targets formulation; Integrated assessment models; Optimal abatement path; Cost–benefit; Cost-effectiveness; Welfare; Negative emissions (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: The welfare properties of climate targets (2025)
Working Paper: The welfare properties of climate targets (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:228:y:2025:i:c:s0921800924003215

DOI: 10.1016/j.ecolecon.2024.108424

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