If you ever tried to argue with a biologist about the pros and cons of conservation, of climate change or habitat encroachment, for example, the debate will pretty fast narrow down to whether the future should be discounted or not. For an economist, this is a nonsensical debate, as the present value of anything is infinity if there is no discount rate and a possibly infinite lifetime. But among economists as well, there is a debate about what discount rate to use, in particular after the release of the Stern Review (previous post about this).
David Anthoff, Richard Tol and Gary Yohe now provide a much more rational discussion about how to treat discounting for climate change. Take a standard Ramsey model, and in the Euler equation one needs to take into account time preference, risk aversion and the growth rate of marginal utility. Under fairly standard assumptions, this amounts to figuring out the (pure) discount rate, the curvature of utility and the growth rate of consumption. Obviously, the (pure) discount rate will have a large impact on the discount rate to use, but so will have risk aversion considering the large uncertainties about climate change. The uncertainties are not so much about whether it is happening, but rather how far and fast this change will happen.
Interestingly, Anthoff, Tol and Yohe find that the present value of the social cost of carbon is $61 a metric ton, which is a lot more than the $0 the US Congress seems to be ready to price it for the initial carbon permits...
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