Date of Award

Spring 1-1-2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Forestry and Environmental Studies

First Advisor

Gillingham, Kenneth

Abstract

Climate change and climate policies have distributional consequences on a global scale. Climate impacts are unevenly distributed, responsibilities for emissions vary across countries, and capabilities to mitigate and adapt differ. These distributional aspects are at the heart of international climate policy discussions. In response, international climate finance—financial transfers from developed to developing countries for climate mitigation, adaptation, and damage compensation—has become a central topic in international climate negotiations. The three chapters of this dissertation explore distributional considerations in climate economics from different perspectives and assess how optimal climate policy may depend on these considerations.The first paper examines how the stance on global inequality—reflected in the choice of regional welfare weights—affects optimal carbon prices. Specifically, I investigate how standard estimates of optimal carbon prices, which focus solely on efficiency and are insensitive to the distribution of the costs and benefits of climate policy, compare to those under an inequality-sensitive approach that accounts for differences in the marginal value of consumption between wealthier and poorer countries. I theoretically show that accounting for inequality increases the optimal stringency of global climate policy if poorer nations are more vulnerable to climate change—due to higher marginal climate damages, faster population growth, and slow economic catch-up—and if the costs of reducing emissions predominantly fall on wealthier countries. In calibrated simulations, I find that accounting for inequality increases the optimal climate policy stringency. This result is primarily driven by disproportionately large climate damages in poorer countries. In the absence of international transfers, more stringent climate policy improves global welfare. Building on the first chapter, the second chapter relaxes the assumption of no international transfers to explore how the availability of international climate finance influences welfare-maximizing carbon prices. By focusing on the transfer quantity agreed upon in international climate negotiations, the chapter addresses the question: What are the welfare-maximizing carbon prices given real-world constraints on international transfers? I find that the Paris Agreement’s $100 billion annual transfer considerably reduces optimal global emissions when it is directed toward mitigation projects in developing countries. Together, the first two chapters establish that accounting for inequality and the availability of international climate finance—two central aspects in international climate policy—reduces optimal global emissions by 31% compared to a policy that excludes these factors. The third chapter, coauthored with Matthew Kotchen and Matthew Gordon, adopts a different perspective on the distributional aspects of climate change. While the first two chapters use a welfare-economic approach to examine how optimal climate policy depends on the stance toward global consumption inequality, the third chapter applies a property rights perspective that maintains the standard separation between global inequality and climate change, narrowing the focus on the distributional effects of climate change itself. However, we show that there is no unique way to separate the issues of global inequality and climate change, as climate change and climate policies have distributional consequences of their own. Instead, different property rights regimes—ranging from “right to pollute” to “right to no pollution”—characterize a set of efficient allocations. These allocations differ solely in the distribution of the cost burden of climate damages and abatement, resulting in different distributional outcomes. We further link these distributional outcomes to different regional welfare weights in the social welfare function and establish theoretically grounded definitions for international payments for climate mitigation and climate damages—both widely discussed in international negotiations. Calibrated simulations illustrate the theoretical insights and quantify the distributional implications of different property rights regimes.

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