A framework for considering fairness between generations

One element of a Just Transition is that the approach taken should be “fair” between current and future generations. To help us think about what this means in practice, Sustainability First commissioned Frontier Economics on a pro bono basis to provide a framework for analysing the issue of intergenerational equity; an issue that our previous work had indicated further research was needed in. The report, published today, provides a comprehensive review of the issue.

As a starting point for looking at these issues Frontier note the ethical considerations that apply in relation to climate change and other issues. This ethical framework – including the view that we have a duty to future generations to leave them with a habitable planet – provides an underpinning for the government commitment to net zero.

Frontier then consider the factors that feed into policy appraisal and in particular the social discount rate that policy makers use. This social discount rate reflects an assumption that future generations will be better off and that we will continue to find new and better ways of doing things. However, having to deal with the devastating impacts of climate change may mean that future generations are not richer and some of the changes may be irreversible – even with more money and more innovation. One way of allowing for this would be to set a lower discount rate for investment around climate mitigation – which would strengthen the case for spend today that delivers benefits long into the future. Treasury are currently considering such a move which Sustainability First would support.

Another feature of the sorts of investments and changes that are needed to tackle climate change is that, by their nature, they will have much broader costs and benefits than simply those relating to climate. For example, energy infrastructure investment can have implications for jobs and economic growth, air quality and health. Economists refer to these as co-benefits and HMT in their update on net zero made clear that these need to be considered when assessing potential pathways to net zero – a message that the Frontier work reinforces.

They also stress that distributional impacts need to be considered not just in relation to climate action but also adaptation – a point made in the Climate Change Committee’s  Third Climate Change Risk Assessment out last week. 

Building on the Frontier report, Sustainability First has published a Viewpoint summarising the key messages as we see them and our view of the steps that now need to be taken including:

- providing further clarity to policy makers about the imperative to consider the interests of future generations (for example in an equivalent of the Wales Well-being of Future Generations Act);

- for guidance to be provided by HMT on the use of a lower social discount rate in considering climate impacts;

- for there to be explicit consideration by regulators of the risk of under-investing as well as the risk of asset stranding;

- building consensus around how to consider intergenerational equity, including through deliberative engagement with citizens;

- for Ofgem, working with government, to explicitly take account of wider co-benefits in its assessments of potential actions to support net zero, building on the framework proposed by Frontier.