The effects of choosing a discount rate on climate policy and forest rotation length Shearer, Mark Daniel
An economic concept that has the ability to dictate whether or not abatement efforts are taken to reduce greenhouse gas emissions is discounting. The selection of a discount rate can have serious ramifications in climate change policy development. Discount rates can be highly variable and selected in a seemingly arbitrary manner. Eighteen pieces of literature are reviewed to study the variability and the rational for discount rate selection. The discount rate could determine whether or not capital is invested in climate change mitigation at present [positive rate] or if the costs are delayed to future generations [near zero rate]. Research on negative discount rates has yet to be fully developed. With no commonly accepted method of selecting a discount rate, it is difficult for governments to collaborate or agree on climate change policies. By reviewing the three approaches to discount rates I will explain the advantages and disadvantages of each method. I intend to highlight the sensitivity of the discount rate on abatement efforts and the problems discount rates can present within the field of forestry.
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