Economics, ethics and climate change. Arguments for a Better World


There may never have been an instance of environmental pollution to challenge our powers of analysis and evaluation quite like climate change. Global in its causes and consequences, spanning many generations and poorly understood but with the potential to transform the natural environment, climate change has highlighted challenging questions of the economics of risk, of distribution amongst individuals over space and time, and of different aspects of well-being. Any economic analysis of climate change policy must examine the conflicting interests of different people and, indeed, consider the meaning and relevance of ‘interest’.

It is not enough to simply presume that existing markets can provide a technocratic solution to ethical questions of intergenerational justice. Indeed, by its very nature climate change demands that a number of ethical perspectives be considered, of which standard welfare economics is just one. Other relevant and important approaches highlight rights, freedoms and the prevention of harm, as well as approaches based on virtues, as well as social contracts.

Furthermore, even if we accept the ethical tenets of the general welfare economics approach, the ‘workhorse’ model of standard welfare economics is one of several possible specifications. It has the merits of parsimony, but the disadvantages of incorporating a relatively restrictive ethical structure.

Nevertheless, economics can provide valuable guidance on ethical issues by focusing on the consequences of policy and clarifying the implications of particular viewpoints on how to aggregate these consequences. But the relationship between economics and ethics cuts both ways: a careful, explicit examination of the relevant ethical issues can guide the formulation of economic questions on climate change and establish the meaning and relevance of the analysis. In section 2, we set the standard welfare-economic approach to climate-change policy in the context of other major ethical perspectives. In section 3, we set out the dimensions of human well-being relevant to most ethical perspectives, along with the value judgements necessary for aggregation across those dimensions. The advantages and disadvantages of the various methods for determining value judgements are assessed in section 4, before these methods are applied in section 5 to three specific types of aggregation: temporal inequality, intra-temporal inequality and risk. Section 6 offers some brief concluding thoughts.


Dietz, S., Hepburn, C., and Stern, N. 2009. Economics, ethics and climate change. Arguments for a Better World: essays in honour of Amartya Sen (Volume 2: society, institutions and development) [Kaushik Basu and Ravi Kanbur (eds.)]. Oxford University Press, Oxford.