Determining Benefits and Costs for Future Generations

Arrow, Kenneth J.; Cropper, Maureen; Gollier, Christian; Groom, Ben; Heal, Geoffrey; Newell, Richard G.; Nordhaus, William D.; Pindyck, Robert S.; Pizer, William A.; Portney, Paul R.; Sterner, Thomas; Tol, Richard S.J.; Weitzman, Martin L.

doi:10.1126/science.1235665

Cited by 350 publications

(192 citation statements)

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“…(Arrow et al 2013;Gollier 2008)), and I therefore also use a rate that starts at 4 % and decreases exponentially with a 250 year time constant (i.e. the percentage rate is 4*exp(−t/250) where t is the time in years) which approximates the mean behavior seen in several prior studies discussed in Arrow et al (2013). Note that the framework employed here does not directly include any economic response to environmental damages other than the backstop assumption.…”

Section: Basic Climate Damagesmentioning

confidence: 99%

“…Finally, authors have argued for the use of a declining discount rate (DDR) (e.g. (Arrow et al 2013;Gollier 2008)), and I therefore also use a rate that starts at 4 % and decreases exponentially with a 250 year time constant (i.e. the percentage rate is 4*exp(−t/250) where t is the time in years) which approximates the mean behavior seen in several prior studies discussed in Arrow et al (2013).…”

Section: Basic Climate Damagesmentioning

confidence: 99%

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The social cost of atmospheric release

2015

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I present a multi-impact economic valuation framework called the Social Cost of Atmospheric Release (SCAR) that extends the Social Cost of Carbon (SCC) used previously for carbon dioxide (CO 2 ) to a broader range of pollutants and impacts. Values consistently incorporate health impacts of air quality along with climate damages. The latter include damages associated with aerosol-induced hydrologic cycle changes that lead to net climate benefits when reducing cooling aerosols. Evaluating a 1 % reduction in current global emissions, benefits with a high discount rate are greatest for reductions of co-emitted products of incomplete combustion (PIC), followed by sulfur dioxide (SO 2 ), nitrogen oxides (NO x ) and then CO 2 , ammonia and methane. With a low discount rate, benefits are greatest for PIC, with CO 2 and SO 2 next, followed by NO x and methane. These results suggest that efforts to mitigate atmosphere-related environmental damages should target a broad set of emissions including CO 2 , methane and aerosol/ozone precursors. Illustrative calculations indicate environmental damages are $330-970 billion yr −1 for current US electricity generation (~14-34¢ per kWh for coal,~4-18¢ for gas) and $3.80 (−1.80/+2.10) per gallon of gasoline ($4.80 (−3.10/+3.50) per gallon for diesel). These results suggest that total atmosphere-related environmental damages plus generation costs are much greater for coal-fired power than other types of electricity generation, and that damages associated with gasoline vehicles substantially exceed those for electric vehicles.

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Section: Basic Climate Damagesmentioning

confidence: 99%

Section: Basic Climate Damagesmentioning

confidence: 99%

The social cost of atmospheric release

2015

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“…The choice of a discount rate has, therefore, enormous consequences for long-run environmental planning [2,3]. For example, in a highly influential report on climate change commissioned by the UK government, Stern [4] uses a discounting rate of 1.4%, which on a 100-year horizon implies a present value of 25% (meaning the future is worth 25% as much as the present).…”

Section: Introductionmentioning

confidence: 99%

“…Letting interest rates be a proxy for economic growth, a different version of the same argument is that the technologies of the future will be so powerful that they will dwarf anything we can achieve with present-day technologies. Thus it is more effective to follow policies that foster economic growth than to try to combat global warming now [2][3][4].…”

Section: Introductionmentioning

confidence: 99%

Value of the future: Discounting in random environments

et al. 2015

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We analyze how to value future costs and benefits when they must be discounted relative to the present. We introduce the subject for the nonspecialist and take into account the randomness of the economic evolution by studying the discount function of three widely used processes for the dynamics of interest rates: OrnsteinUhlenbeck, Feller, and log-normal. Besides obtaining exact expressions for the discount function and simple asymptotic approximations, we show that historical average interest rates overestimate long-run discount rates and that this effect can be large. In other words, long-run discount rates should be substantially less than the average rate observed in the past, otherwise any cost-benefit calculation would be biased in favor of the present and against interventions that may protect the future.

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“…We then contrasted land purchase scenarios developed by All properties selected in land purchase Marxan solutions were also used as candidates for 123 covenants under the assumption of willing owners in both cases. We did not estimate change in 124 land value given covenants as there is no clear consensus on its magnitude or direction 125 (Anderson and Weinhold, 2008 because the alternative of using discount rates equal to the inflation rate for costs incurred over 133 time and reporting in future dollar values, has been shown to be highly sensitive to the discount 134 rate chosen, leading to substantial uncertainties about future dollar amounts (Arrow et al, 2013). 135…”

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confidence: 99%

Efficient routes to land conservation given risk of covenant failure

Schuster

Arcese

Vancouver³

2015

Preprint

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Conservation initiatives to protect valued species communities in human-dominated landscapes face challenges linked to their potential costs. Conservation covenants on private land may represent a cost-effective alternative to land purchase, although many questions on the long-term monitoring and enforcement costs of covenants and the risk of violation or legal challenges remain unquantified. We explore the cost-effectiveness of conservation covenants, defined here as the fraction of the high-biodiversity landscape potentially protected via investment in covenants versus land purchase. We show that covenant violation and dispute rates substantially affect the estimated long-term cost-effectiveness of a covenant versus land purchase strategy. Our results suggest the long-term cost-effectiveness of conservation covenants may outperform land purchase as a strategy to protect biodiversity as long as disputes and legal challenges are low, but point to a critical need for monitoring data to reduce uncertainty and maximize conservation investment cost-effectiveness.

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Determining Benefits and Costs for Future Generations

Abstract: The United States and others should consider adopting a different approach to estimating costs and benefits in light of uncertainty.

Cited by 350 publications

References 10 publications

The social cost of atmospheric release

The social cost of atmospheric release

Value of the future: Discounting in random environments

Efficient routes to land conservation given risk of covenant failure

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