Geoscience Reference
In-Depth Information
16
DISCOUNTING AND THE
VALUE OF TIME
Any consideration of the costs of meeting climate objectives requires
confronting one of the thorniest issues in all of climate-change econom-
ics: How should we compare present and future costs and benefi ts? This
is a moderately complex issue and extends to the frontier of current eco-
nomic theory. However, it is also of central importance for understand-
ing the temporal trade-offs involved. These are trade-offs between the
costs of emissions reductions today and the societal value of reduced
damages in the future. So a full appreciation of the economics of cli-
mate change cannot proceed without dealing with discounting.
Here is the issue in a nutshell: When we make investments to reduce
emissions, these costs are paid largely in the near term. The benefi ts in
the form of reduced damages from climate change come far in the fu-
ture. As an example, suppose that we replace a coal-fi red power plant
with a wind farm. If we follow the chain of effects from building the
wind farm to reduced CO
2
emissions and concentrations to temperature
change to reduced damages, there is a delay of many decades from
building the wind farm emissions to the reduction in damages.
OUR FIRST MORTGAGE
Economists generally advocate that we discount benefi ts in the fu-
ture relative to costs incurred today. Others hold that it is unethical to
give lower priority to future generations than to people living today.
How can we sort this out?
