Johan Eyckmans, KU LEUVEN: "The distributional effects of different climate change damage channels and mitigation policies"

Abstract:

This paper studies important drivers of distributional impacts between regions and over time of climate changes damages and mitigation policies using a numerical integrated assessment model.

A first group of drivers relates to how global climate change affects countries differently depending on their vulnerability, geography, adaptive capacity etc. In particular, we consider climate change damages that are proportional to GDP but also nonlinear impacts of climate change on productivity growth and capital depreciation. The second type of drivers relate to the global climate policy cooperation and ambition level. The third type of drivers relate to policies to alleviate possible adverse impacts on inequality across countries and regions by means of transfers.

We find that poor and rich regions are affected very differently by climate change under different assumptions about damage channels. For example, poorer countries are often warmer and therefore suffer more from impacts of climate change on TFP growth leading to an increase in global inequality. At the same time, climate change may reduce inequality by destroying capital stock of rich regions that tend to have higher capital values at stake.

We show that in global welfare maximizing cooperation without transfers rich regions may be required to exert excessive abatement effort in order to reduce inequality. A proper transfer scheme is therefore necessary to alleviate inequality but also to avoid excessive abatement efforts.