Individualized cost–benefit analysis does not fit for demand-side mitigation

Abstract

The desirability of demand-side options depends on their mitigation potential and well-being implications. Work from the IPCC suggests that demand-side mitigation is estimated to reduce emissions by 40–70% in end-use sectors while being consistent with similar or increased levels of human well-being¹. Based on a cost–benefit case study from Beijing, China, Tan-Soo et al.² show that eight out of 12 policies allegedly incur individual welfare losses and seven result in social welfare loss. Using the approach of Tan-Soo et al., we show that the results hinge on assumptions worthy of debate. We show that an approach that is more sophisticated psychologically—accounting for endogenous preferences, for example—flips the central findings, leading to overall positive effects of demand-side mitigation on welfare.

Tan-Soo et al.’s finding that two-thirds of all demand-side climate mitigation options result in social welfare loss contrasts with previous findings that more than two-thirds of demand-side mitigation options improve eudaimonic well-being¹. This difference raises critical questions on the methodology and conceptual understanding of costs, preferences and well-being. Here we open the discussion on the appropriate methodology. We applaud Tan-Soo et al.’s attempt to quantify the (social) welfare of demand-side options, but find their assumptions in contrast with our own understanding of how demand-side options need to be evaluated^1,3,4,5.