38 Pages Posted: 14 Aug 2008 Last revised: 19 Oct 2014
Date Written: August 12, 2008
Some of the most important disagreements about how aggressively to respond to the threat of climate change turn on the choice of the discount rate. A high discount rate implies relatively modest and slow reductions; a low discount rate implies immediate and dramatic action. The debate between the two sides reflects a disagreement between the positivists, who argue for a market rate, and the ethicists, who urge that the positivist approach violates the duty of the present to the future. We argue that the positivists are largely right, and that the question of discounting should be separated from the question of the ethical duties of the present. Discounting is a means of taking account of opportunity costs, and a refusal to discount may well hurt, rather than help, future generations. Nonetheless, it is also possible that cost-benefit analysis with discounting will impose excessive harms on future generations. If so, the proper response is to make investments that will help those generations, not to refuse to discount. We also explore several questions on which the ethicists' legitimate objections require qualification of the positivists' arguments, justifying a low discount rate for climate change policy.
Keywords: discounting, future generations, climate change, intergenerational neutrality
Suggested Citation: Suggested Citation
Weisbach, David A. and Sunstein, Cass R., Climate Change and Discounting the Future: A Guide for the Perplexed (August 12, 2008). Reg-Markets Center Working Paper No. 08-19; Harvard Public Law Working Paper No. 08-20; Harvard Law School Program on Risk Regulation Research Paper No. 08-12. Available at SSRN: https://ssrn.com/abstract=1223448 or http://dx.doi.org/10.2139/ssrn.1223448
By Eric Posner