Environmental Engineering Reference
In-Depth Information
Intergenerational equity in Stern
s view must be a center-
piece of how the world handles problems today that will
affect the welfare of the people of the future.
In a physicist
'
s view (mine), I wonder if they are both
trying to quantify the unquanti
'
able.
Social discount rates are slippery things. I saved a lot for
the bene
t of my children and save a lesser amount for
the bene
t of my grandchildren; my children have the
primary responsibility for their children. The social
discount rate should be time-dependent and in any
event is entirely a value judgment. It is not mathematic-
ally determined though you can use mathematics to
determine its effects after you guess what is should be.
I wonder if the notion of a discount rate makes sense over
long time periods. If you are a business looking at the
value of a new factory, or a government trying to decide
between
xing roads and cutting taxes, it does make sense
to use a discount rate related to the productivity of capital
over a foreseeable future, probably about
years.
However, over hundreds of years nothing is worth any-
thing today with any reasonable discount rate.
to
Stern sets a target for the maximum level of greenhouse
gases we should allow. His target is an upper limit of
doubling of the preindustrial level (which is what
I would have recommended had he asked me). Nord-
haus uses about the same thing. As I said earlier,
I believe that above that level there is a real risk of
climate instabilities that we do not now understand,
but there is also a risk of such instabilities at a lower
level. Nordhaus seems not to include a risk premium
for a sudden instability (like an insurance policy) into
