Project holder

Stefan Pollinger, Department of Economics - Sciences Po

Projects description

Global warming caused by anthropogenic greenhouse gas emissions triggers a wide range of future climate damages, such as increased mortality due to extreme heat waves, ecosystem disruptions, sea level rise, and an increase in extreme weather events. It calls for an abatement of emissions, which, however, is costly. Therefore, society faces a difficult tradeoff: By how much should we sacrifice the material needs of the current generation to reduce carbon emissions and their consequent climate damages to future generations? The economic literature has focused on a guiding principle for answering this question: the social cost of carbon. It is the present discounted value of future damages caused by emitting one ton of carbon. The concept provides theoretical guidance on which abatement efforts should be pursued: Emissions with present benefits lower than the social cost of carbon should be avoided. However, determining its value is challenging. The social cost of carbon cannot be inferred from individuals’ observed behavior since free-riding incentives usually distort their willingness to pay for abatement. An alternative way to determine its value is calculating the present discounted value of future climate damages, but it has its pitfalls as well: There is no consensus on the appropriate intergenerational discount rate. For these reasons, a broad consensus on the value of the social cost of carbon is still missing. Yet, since efficient responses to the climate crisis depend crucially on the social cost of carbon and the intergenerational discount rate, progress toward a better understanding of their respective values is of key importance.

Our project aims to provide the first elicitation of the social cost of carbon and the intergenerational discount rate using a large-scale, representative, and incentivized choice experiment. To this end, we will place people in the shoes of  "social architects" who need to allocate resources between the consumption of a representative member of the current generation and the abatement of greenhouse gases. Their choices will have real-world consequences since we will implement a portion of them. This so-called “spectator design” is a very well-established experimental method for eliciting individuals' social preferences (e.g., fairness and redistributive preferences). However, it has not yet been applied to elicit preferences for the social cost of carbon or intergenerational discounting. Importantly, leveraging this design allows us to elicit preferences that are not confounded by free-riding motives since subjects’ decisions do not affect their direct private compensation. This aspect is a key novelty of our proposal.  

Eliciting people's preferences for the social cost of carbon and intergenerational discounting serves three goals. First, our project will bring new evidence to the long-standing debate about how to discount intergenerational costs and benefits. The intergenerational discount rate is a key input parameter of integrated assessment models used to determine optimal climate policies. Our estimates will form a novel basis for calibrating these models. Second, the social cost of carbon is a sufficient statistic for the desirability of climate policies. Therefore, our results reveal people's policy preferences. Our estimates will contribute to a better understanding of citizens' preferences for the intergenerational tradeoff posed by the climate crisis. They will provide valuable guidance for policymakers on which policies are socially desirable and politically feasible. Third, we will shed light on the distribution and the determinants of citizens’ climate preferences. In particular, we will investigate how information, ideology, and misconceptions influence preferences. Revealing sources of disagreement and factors that influence climate preferences will allow us to investigate pathways toward a broader social consensus on this essential policy question.