Global impact of a climate treaty if the Human Development Index replaces GDP as a welfare proxy

Abstract

This study explores the implications of shifting the narrative of climate policy evaluation from one of costs/benefits or economic growth to a message of improving social welfare. Focusing on the costs of mitigation and the associated impacts on gross domestic product (GDP) may translate into a widespread concern that a climate agreement will be very costly. This article considers the well-known Human Development Index (HDI) as an alternative criterion for judging the welfare effects of climate policy. We estimate what the maximum possible annual average increase in HDI welfare per tons of CO2 would be within the carbon budget associated with limiting warming to 2°C over the period 2015–2050. Emission pathways are determined by a policy that allows the HDI of poor countries and their emissions to increase under a business-as-usual development path, while countries with a high HDI value (>0.8) have to restrain their emissions to ensure that the global temperature rise does not exceed 2°C. For comparison, the well-known multi-regional RICE model is used to assess GDP growth under the same climate change policy goals. Policy relevance This is the first study that shifts the narrative of climate policy evaluation from one of GDP growth to a message of improving social welfare, as captured by the HDI. This could make it easier for political leaders and climate negotiators to publicly commit themselves to ambitious carbon emission reduction goals, such as limiting global warming to 2°C, as in the (non-binding) agreement made at COP 21 in Paris in 2015. We find that if impacts are framed in terms of growth in HDI per t CO2 emission per capita instead of in GDP, the HDI of poor countries and their emissions are allowed to increase under a business-as-usual development path, whereas countries with a high HDI (>0.8) must control emissions so that global temperature rise remains within 2°C. Importantly, a climate agreement is more attractive for rich countries under the HDI than the GDP frame. This is good news, as these countries have to make the major contribution to emissions reductions.