Climate Change Discount Rates

Those two issues are connected. Stern’s conclusion differs from Nordhaus’s principally because, on ethical grounds, Stern uses a lower “discount rate.” Economists generally value future goods less than present ones: they discount future goods. Furthermore, the more distant the future in which goods become available, the more the goods are discounted. The discount rate measures how fast the value of goods diminishes with time. Nord­haus discounts at roughly 6 percent a year; Stern discounts at 1.4 percent. The effect is that Stern gives a present value of $247 billion for having, say, a trillion dollars’ worth of goods a century from now. Nordhaus values having those same goods in 2108 at just $2.5 billion today. Thus, Stern attaches nearly 100 times as much value as Nordhaus does to having any given level of costs and benefits 100 years from now.

Eh?

Those discount rates don\’t sound right at all. Anmyone remember what the true ones are?

7 comments on “Climate Change Discount Rates

  1. Quite. Because if he used anything more than a microscopic discount rate, the case didn’t stack up. Even on the shoddy scenario to which he restricted his analysis.

  2. There’s not a cat’s chance in hell that Stern leads his own life on a discount rate that low. So why is the lying liar lying to us?

  3. My very dear Mr. Stern:

    I understand you are wealthy. I am poor and need a loan.

    Would you consider lending me a few dollars for 100 years? I will cheerfully pay you a good rate of interest. Shall we say 1.4%?

    I made this proposal to my bank and they said I was mad.

    Perhaps you are crazy too.

  4. “Would you consider lending me a few dollars for 100 years? I will cheerfully pay you a good rate of interest. Shall we say 1.4%?”

    I assume the Stern discount rates are “real” rates (i.e. allowing for inflation) – doesn’t make much sense otherwise. In which case 1.4% above inflation isn’t bad at all (the last auction of long-dated IL gilts – redeemed in 2055 – had a coupon of 1.25%, but are currently priced with a yield of just 0.4%).

  5. Kay Tie, with environmentalists one cannot assume reasonable assumptions.

    Even our beloved host, and I hesitate to criticize too strongly lest he ban me like Murphy has, makes the unfounded and unreasonable assumptions that ‘climate change’ exists and is caused by us.

    In debating in this arena one must insist on reasoning as clear and pure as possible, syllogisms one after another. I find that only in the skeptics of Glowball Warmening.

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