In the NewsInside Climate NewsFebruary 26, 2021
How Much Does Climate Change Cost? Biden Raises Carbon’s Dollar Value, but Not by Nearly Enough, Some Say
Although most economists agree that some discounting of future benefits is a sound approach, they say the discount rate should be low at a time of low inflation and low interest rates. Tamma Carlton, an economist at the University of California, Santa Barbara and a co-author, with Greenstone, of last month’s working paper on the social cost of carbon, said that one key change they made in arriving at their $125 per ton figure was applying a lower discount rate than was used during the Obama years, when inflation and interest rates were higher.
There are also strong moral arguments against the Trump approach of greatly discounting future climate benefits, which Trump administration economists achieved by using stock market returns as their key metric.
“We’re talking about long-run intergenerational decisions here,” said Carlton. “And there are many reasons to think that the sort of short-run behavior of the stock market does not reflect the decisions we want to think about when we’re thinking about many generations into the future, and how we discount the future for our children and our children’s children.