The Debate over Discounting
Any analysis of the ethical issues associated with climate change must come to terms with the fact that the benefits of emissions reductions will be enjoyed in the future rather than the present. If the world cuts emissions immediately, the beneficiaries of its action will be people living decades from now, not people living today. By contrast, the costs of emissions reductions will be paid mostly by current generations. How should policymakers and analysts deal with future benefits and present costs? Among economists, the standard answer is that future effects should be “discounted.” A dollar today is worth more than a dollar in a year. Economists ask: Shouldn't the future benefits of reduced climate change also be discounted?
The debate over this question might seem to be a technical, mathematical issue, but it turns out to be one of the central ethical dilemmas in evaluating climate change. Seemingly small changes in the discount rate can lead to very large changes in estimates of the costs of climate change and the benefits of abatement. With a high discount rate, the argument for immediate, aggressive action to reduce climate change seems weak. With a near-zero discount rate, that argument seems extremely strong.
Defenders of discounting argue that discounting at the market rate of return is necessary to ensure consistent comparisons of resources spent in different time periods. Critics of discounting begin with a principle of intergenerational neutrality. They insist that people in the current generation should not be treated as more valuable than people in the next generation; they object that discounting