From Volume 84, Number 5 (July 2011)
Efforts to reduce greenhouse gases and control climate change implicate a wide range of social, moral, economic, and political issues, none of them simple or clear. But when regulators use cost-benefit analysis to evaluate the desirability of climate change mitigation, one factor typically determines whether mitigation is justified: the discount rate, the rate at which future benefits are converted to their present value. Even low discount rates make the value of future benefits close to worthless: at a discount rate of three percent, ten million dollars five hundred years from now is worth thirty-eight cents today. Thirty-eight cents is therefore more than we would be willing to pay now to save a life in five hundred years. Discounting over very long periods, like in the context of climate change, has long perplexed economists, philosophers, and legal scholars alike. This Article evaluates the four principal justifications for intergenerational discounting, which are often conflated in the literature. It shows that none of these justifications support the prevalent approach of discounting benefits to future generations at the rate of return in financial markets and, more generally, that discounting cannot substitute for a moral theory setting forth our obligations to future generations.