Climate Policy and Intergenerational Welfare∗

We use a two-sector OLG model to study the intergenerational effects of a tax designed to conserve a natural resource such as the global atmosphere. The traded asset capitalizes future environmental benefits created by the tax, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit from the higher environmental stock created by the tax. The intergenerational conflict arising from climate policy is between generations alive at the time society imposes the policy, not between generations alive at different times. A simple transfer from the current old to the current young leads to a Pareto-improving policy that can be implemented and sustained in a setting where any policy change requires a supermajority.