The climate beta
Produced as part of the Managing climate risks and uncertainties and strengthening climate services CCCEP research programme theme
Reducing emissions of CO2 today is expected to reduce climate damages in the future. In this paper, we examine the question of whether fighting climate change has the additional advantage of reducing the aggregate risk borne by future generations. This raises the question of the ‘climate beta’, i.e. the elasticity of climate damages with respect to a change in aggregate consumption. Using the DICE integrated assessment model, we show that the climate beta is positive and close to unity, due above all to the effect of uncertainty about technological progress. In estimating the social cost of carbon, this justifies using a relatively larger rate to discount expected climate damages. On the other hand, expected climate damages are themselves made larger by this effect and overall the NPV of emissions reductions today is increased by the climate beta.