Climate Policy Without Intertemporal Dictatorship

Most debates about climate economics focus on discount rates or damage functions. But there’s a less-discussed question that’s equally important: how do we weigh the welfare of people living today against those who’ll be here 100 or 200 years from now?

This question sits at the heart of climate policy design. Get it wrong, and you either impose excessive costs on current generations or leave future generations to deal with catastrophic warming. A recent study published in Climate Change Economics—co-authored by Anthrocene founder Graciela Chichilnisky—examines one approach to this challenge and tests how it performs in real climate-economy models.

The Core Problem

Traditional cost-benefit analysis for climate policy uses discounted utilitarianism. This approach applies a discount rate to future benefits, making outcomes decades from now mathematically less important than outcomes today. The logic is straightforward: people generally prefer benefits now over benefits later, and economies typically grow over time, making future generations wealthier.

But climate change creates a unique problem. Greenhouse gases persist in the atmosphere for centuries. Policy decisions made today directly affect not just our children, but generations far beyond any reasonable planning horizon. Standard discounting can make even catastrophic long-term damages appear manageable when converted to present value.

An Alternative Framework

The Chichilnisky criterion, originally developed by our founder Dr. Graciela Chichilnisky in the 1990s, attempts to balance two principles: present decisions shouldn’t disregard the far future, but they also need to account for welfare implications today. Mathematically, it works by maximizing a weighted average of two components—a traditional discounted sum of utilities plus the terminal utility value at the end of the time horizon.

Think of it as splitting the difference between pure present-focus (where only near-term outcomes matter) and pure future-focus (where only the final state matters). The criterion avoids what Dr. Chichilnisky calls “intertemporal dictatorship”—letting either present or future generations completely dominate decision-making.

Testing the Theory

In this 2017 study, Dr. Chichilnisky and her co-authors applied this framework to DICE, William Nordhaus’s widely-used climate-economy model, and ran it under different scenarios. They tested both the standard DICE damage function and a more extreme version proposed by economist Martin Weitzman that allows for potentially catastrophic warming impacts.

The results were striking. Optimal emission reduction paths varied dramatically depending on which welfare criterion was used. Under standard discounted utilitarianism, early action was relatively modest. Under classical utilitarianism (equal weight to all generations, no discounting), emission reductions were more uniform over time. Under the Chichilnisky criterion, outcomes depended heavily on the weight assigned to terminal utility.

When researchers used very high weights for the final term—effectively prioritizing the welfare of far-future generations—policy recommendations shifted toward much earlier, more aggressive emission reductions. This effect became more pronounced when using Weitzman’s damage function, which captures potential tipping points and runaway warming scenarios.

What the Sensitivity Analysis Revealed

Two parameters proved particularly influential. First, the “Chichilnisky weight” assigned to terminal utility dramatically affected results. Small changes in this parameter produced large swings in optimal policy, especially at low weight values where both near-term and far-term utilities compete for influence.

Second, the damage function mattered enormously. Under standard DICE assumptions about climate impacts, different welfare criteria produced somewhat different policy recommendations. Under Weitzman’s more extreme damage assumptions, the differences became stark.

Interestingly, the usual relationship between discount rates and policy stringency—lower discount rates mean more aggressive climate action—didn’t always hold under the Chichilnisky criterion. This relationship depended on the terminal utility weight, showing how these parameters interact in complex ways.

Practical Implications

For policymakers and carbon market participants, this research highlights a fundamental choice. Classical utilitarianism produces smoother emission reduction paths, avoiding sharp policy changes that could create economic disruption. It also sidesteps two subjective choices: selecting a discount rate and choosing the Chichilnisky weight.

The Chichilnisky approach, however, explicitly addresses long-term sustainability while acknowledging short-term practical constraints. Given that greenhouse gases persist for centuries, a framework that gives explicit weight to very long-term outcomes may better capture the true nature of the climate problem.

Why This Matters for Anthrocene

These aren’t merely academic distinctions. The welfare criteria embedded in climate-economy models shape policy recommendations that influence carbon pricing, removal targets, and compliance frameworks. Dr. Chichilnisky’s work on sustainable preferences and intergenerational equity directly informs Anthrocene’s approach to building a carbon removal marketplace that balances current economic realities with long-term climate imperatives.

If policymakers increasingly adopt frameworks that prioritize long-term sustainability—whether through Chichilnisky-type criteria or other mechanisms—demand for durable carbon removal will accelerate. Projects offering multi-century or permanent storage will become more valuable relative to short-term offsets. Understanding these underlying ethical and economic frameworks, which our founder helped develop, positions Anthrocene to anticipate where policy is heading.

The debate over how to weigh present versus future welfare continues to evolve. But it’s shaping the carbon removal markets we’re building today.

Read the full academic paper: https://ideas.repec.org/p/pra/mprapa/88757.html