The welfare properties of climate targets

Léo Coppens and Frank Venmans

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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)
JEL-codes: I30 Q54 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2025-02-28
New Economics Papers: this item is included in nep-ene and nep-env
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Published in Ecological Economics, 28, February, 2025, 228. ISSN: 0921-8009

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Related works:
Journal Article: 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:ehl:lserod:125996

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