Climate change, intergenerational equity and the social discount rate

2014 ◽  
Vol 13 (4) ◽  
pp. 320-342 ◽  
Author(s):  
Simon Caney
Keyword(s):  
Climate Change ◽  
Climate Policy ◽  
Opportunity Cost ◽  
Future Generations ◽  
Social Discount Rate ◽  
Time Discounting ◽  
Adequate Response ◽  
The Social ◽  
Economic Analyses ◽  
Mitigation Policies

Climate change is projected to have very severe impacts on future generations. Given this, any adequate response to it has to consider the nature of our obligations to future generations. This paper seeks to do that and to relate this to the way that inter-generational justice is often framed by economic analyses of climate change. To do this the paper considers three kinds of considerations that, it has been argued, should guide the kinds of actions that one generation should take if it is to treat both current and future people equitably. In particular it examines the case for what has been termed pure time discounting, growth discounting and opportunity cost discounting; and it assesses their implications for climate policy. It argues that none of these support the claims of those who think they give us reason to delay aggressive mitigation policies. It also finds, however, that the second kind of argument can, in certain circumstances, provide support for passing on some of the costs of mitigation to future generations.

Discounting under Risk

2021 ◽  
pp. 67-89
Author(s):  
Maddalena Ferranna
Keyword(s):  
Climate Change ◽  
Discount Rate ◽  
Public Policies ◽  
Social Discount Rate ◽  
Climate Policies ◽  
The Social ◽  
Ramsey Rule ◽  
Climate Damages

The debate on the economics of climate change has focused primarily on the choice of the social discount rate, which plays a key role in determining the desirability of climate policies given the long-term impacts of climate damages. Discounted utilitarianism and the Ramsey Rule dominate the debate on discounting. The chapter examines the appropriateness of the utilitarian framework for evaluating public policies. More specifically, it focuses on the risky dimension of climate change, and on the failure of utilitarianism in expressing both concerns for the distribution of risks across the population and concerns for the occurrence of catastrophic outcomes. The chapter shows how a shift to the prioritarian paradigm is able to capture those types of concerns, and briefly sketches the main implications for the choice of the social discount rate.

scholarly journals DISCOUNTING FOR PUBLIC POLICY: A SURVEY

2017 ◽  
Vol 33 (3) ◽  
pp. 391-439 ◽  
Author(s):  
Hilary Greaves
Keyword(s):  
Climate Change ◽  
Public Policy ◽  
Interest Rates ◽  
Discount Rate ◽  
Ethical Theory ◽  
Time Preference ◽  
Social Discount Rate ◽  
The Social ◽  
Positive Rate ◽  
Technical Details

Abstract:This article surveys the debate over the social discount rate. The focus is on the economics rather than the philosophy literature, but the survey emphasizes foundations in ethical theory rather than highly technical details. I begin by locating the standard approach to discounting within the overall landscape of ethical theory. The article then covers the Ramsey equation and its relationship to observed interest rates, arguments for and against a positive rate of pure time preference, the consumption elasticity of utility, and the effect of various sorts of uncertainty on the discount rate. Climate change is discussed as an application.

On a social discount rate for forestry

1985 ◽  
Vol 15 (5) ◽  
pp. 927-934 ◽  
Author(s):  
P. A. Harou
Keyword(s):  
Discount Rate ◽  
Opportunity Cost ◽  
Cost Of Capital ◽  
Shadow Price ◽  
Social Benefits ◽  
Review Of The Literature ◽  
Social Discount Rate ◽  
The Social ◽  
Forestry Investments ◽  
Present Worth

After a review of the literature on the discount rate in economics and forestry, a methodology is proposed to arrive at an appropriate social discount rate to appraise public forestry investments. In the proposed approach, the opportunity cost of capital is considered in the establishment of a shadow price of investment. The social discount rate, which should weight the project net social benefits through time, is an unknown of the net present worth equation set equal to zero.

Discounting Future Climate Change and the Equilibrium Real Interest Rate

2020 ◽  
Author(s):  
Michael Bauer ◽  
Glenn Rudebusch
Keyword(s):  
Climate Change ◽  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Real Interest Rate ◽  
Discount Rates ◽  
Social Discount Rate ◽  
The Social ◽  
Macro Finance ◽  
Equilibrium Real Interest Rate

<p>The social discount rate is a crucial element required for valuing future damages from climate change. A consensus has emerged that discount rates should be declining with horizon, i.e., that the term structure of discount rates should have a negative <em>slope</em>. However, much controversy remains about the appropriate the overall <em>level</em> of discount rates.</p><p>We contribute to this debate from a macro-finance perspective, based on the insight that the equilibrium real interest rate, commonly known as r*, is the crucial determinant of the level of discount rates. First, we show theoretically how r* anchors the term structure of discount rates, using the modern macro-finance theory of the term structure of interest rates to provide a new perspective on classic results about social discount rates. Second, we show empirically that new macro-finance estimates of r* have fallen substantially over the past quarter century---consistent with a broader literature that documents such a secular decline. Bayesian estimation of a state-space model for Treasury yields, inflation and the real interest rate allows us to quantify both the decline in r* and the resulting downward shift of the term structure of social discount rates. Third, we document that this decline in r* and the social discount rate boosts the social cost of carbon and has quantitatively important implications for assessing the economic consequences of climate change. In essence, we demonstrate that the lower new normal for interest rates implies a higher new normal for the present value of climate change damages.</p>

scholarly journals The choice of the social discount rate and the opportunity cost of public funds

2013 ◽  
Vol 4 (03) ◽  
pp. 401-409 ◽  
Author(s):  
Mark A. Moore ◽  
Anthony E. Boardman ◽  
Aidan R. Vining
Keyword(s):  
Discount Rate ◽  
Opportunity Cost ◽  
Capital Investment ◽  
Private Investment ◽  
Social Discount Rate ◽  
Public Funds ◽  
Benefit Cost Analysis ◽  
Social Rate ◽  
The Social ◽  
Government Project

The decades-old literature on the correct method for choosing and estimating a social discount rate (SDR) has resulted in two, largely opposing viewpoints. This note seeks to clarify the key sources of disagreement between these two camps. One view advocates that the choice should be based chiefly on the social opportunity cost of the return to foregone private capital investment (SOC), and suggests a SDR of around 7%. The other viewpoint, expressed by the authors, argues that the choice should be based on the social rate of time preference (STP), the rate at which society is willing to trade present for future consumption, suggesting a SDR of around 3.5%. Because of the fundamentally normative basis of the SDR choice, neither approach generates testable hypotheses that would allow falsification. For government project evaluation, the choice ultimately depends on the opportunity cost of public funds, which in turn depends on how fiscal policy actually operates. The STP approach contends that governments set targets for deficits and public debt, so that a marginal government project will be tax-financed, largely crowding out current consumption. The SOC belief is that governments set revenue targets, so that any government project will be deficit-financed on the margin, which will largely crowd out private investment. The authors also argue that a SDR based on the STP approach is appropriate for: benefit-cost analysis of government regulations, self-financing government projects, and government cost-effectiveness studies.

scholarly journals Eco-social State in the European Union: the Relationship Between the Social and Climate Policy of the Member States

2021 ◽  
Vol 22 ◽  
pp. 101-115
Author(s):  
Ulijona Kaklauskaitė ◽  
Jekaterina Navickė
Keyword(s):  
Climate Change ◽  
Climate Policy ◽  
Welfare States ◽  
The European Union ◽  
Member States ◽  
Social State ◽  
Climate Policies ◽  
Climate Indicators ◽  
The Social ◽  
The Relationship

This article analyzes the relationship between the social and climate policies of the European Union member states and examines the concept of the eco–social state. In the climate crisis era, the need for a close link between social and climate policies is particularly acute. The European Green Deal and other EU strategies reflect a political agenda with a specific interest in social and ecological goals. We aim to answer whether more significant state efforts in the social field are related to a similarly more substantial commitment in climate policy or whether a greater focus on one means less attention on another.  On a theoretical level, we discuss the challenges of climate change for social policy and present the concept of climate justice. The similarities and differences between the ecological and the welfare state are also examined. We argue that the concept of climate justice highlights the phenomenon of a double and even triple injustice on a global level, which requires joint efforts in spheres of social and climate policy. Eco-social state combines social and environmental institutions intending to ensure welfare and sustainability and thus complements the traditional concept of the welfare state. The Koch-Fritz (2014) classification, which distinguishes between the established, deadlocked, emerging, and failing eco-social states, is presented in the paper and used for the empirical analysis.  The empirical part of the paper employs non-parametrical correlation and hierarchical cluster analysis. The former allows for exploring the links between the ecological and social indicators. The latter enables countries to be grouped according to social and climate indicators and compared to the traditional classification of welfare states and Koch-Fritz models of eco-social states. The analysis is based on social and climate indicators of the Europe 2020 strategy. The study found that countries that provide relatively more significant funding for traditional social problems also perform better in climate change adaptation and mitigation policies by reducing greenhouse gas emissions in an effort–sharing sectors and final energy consumption. We show that clusters of the EU member states in terms of social and climate indicators (eco–social state models) are very similar to their membership in the traditional welfare states’ classification. Moreover, social democratic welfare states are better prepared to address climate change than countries representing other types of welfare states. Thus the analysis confirms the social democratic welfare states as established eco–social states, while the conservative-corporate and liberal welfare states can indeed be called deadlocked eco–social states with average results. We show, however, that Lithuania, together with other Eastern European and Southern European countries, fluctuates on both the best and the worst social and climate change mitigation outcomes. Hence those should be attributed to a group with the mixed results and can be named as failed-emerging eco-social states.

COVID-19 will not disrupt climate activism in Europe

2021 ◽  
Keyword(s):  
Climate Change ◽  
Economic Impact ◽  
Climate Policy ◽  
Financial Institutions ◽  
Green Party ◽  
Content Type ◽  
The Social ◽  
Electoral Performance ◽  
The Eu

Significance Activists have pressed for involvement in policymaking via citizen assembilies and have stepped up their campaign against European governments and financial institutions which they regard as favouring carbon-intensive industries. Impacts Activists will be concerned by rising emissions that accompany higher consumption once lockdown restrictions are lifted. The social and economic impact of COVID-19 may reduce voter interest and engagement in climate change. A strong electoral performance by Germany’s Green Party would boost support for ambitious fiscal and climate policy at the EU-level.

Sign in / Sign up

Export Citation Format

Share Document