Selfish Incentives for Climate Policy: Empower the Young!

Larry Karp, Alesandro Peri and Armon Rezai

Journal of the Association of Environmental and Resource Economists, 2024, vol. 11, issue 5, 1165 - 1200

Abstract: Reduced carbon emissions can improve the climate, raising young people’s future income and altering old people’s wealth via changes in asset prices. We show that a small level of abatement changes the old and young generations’ welfare in the same direction if and only if their elasticities of intertemporal substitution exceed one. Endogenous asset prices can change the sign and magnitude of the generations’ selfish incentives to undertake climate policy. Our quantitative model shows that the young generation’s concern for future consumption significantly reduces the equilibrium carbon trajectory, but the endogeneity of asset prices has a small effect.

Date: 2024
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