Of course, philosophically, pure time discounting is wrong, but:
“Another reason to discount is that far future benefits are more speculative, and changes to the world in the meantime can disrupt your project or make it irrelevant. For example, a vaccine development project that hopes to deliver a vaccine in a few decades faces a higher risk of being defunded or the disease in question disappearing, than does a similar project that expects to deliver a vaccine in a matter of years. This is a good reason to discount future benefits and costs, but the appropriate rate will vary dramatically depending on what you are looking at, and will not necessarily be the same every year into the future.”
The social cost of carbon is generally highly sensitive to the pure rate of time preference.
But:
“The national social costs of carbon of faster growing economies are less sensitive to the pure rate of time preference and more sensitive to the rate of risk aversion” from Tol
and from the Ricke paper:
“CSCCs were calculated using both exogenous and endogenous9 discounting. For conventional exogenous discounting, two discount rates were used, 3 and 5%. the results under endogenous discounting were calculated using two rates of pure time preference (ρ=1, 2%) and two values of elasticity of marginal utility of consumption (μ=0.7, 1.5) for four endogenous discounting parameterizations.”
So maybe it’s not highly sensitive to just discounting anymore.
But both the Ricke and the Tol paper use sensitivity analyses on their SCC and different parameterizations make SCC 10s to 1000s of $ per tonne and I guess they’ll use “sensible” ranges for this.
I would love others to look into this more as well and could well imagine new research uncovering facts that would dominate this analysis.
Thank you for your kind words Sam.
On discounting:
Of course, philosophically, pure time discounting is wrong, but:
“Another reason to discount is that far future benefits are more speculative, and changes to the world in the meantime can disrupt your project or make it irrelevant. For example, a vaccine development project that hopes to deliver a vaccine in a few decades faces a higher risk of being defunded or the disease in question disappearing, than does a similar project that expects to deliver a vaccine in a matter of years. This is a good reason to discount future benefits and costs, but the appropriate rate will vary dramatically depending on what you are looking at, and will not necessarily be the same every year into the future.”
https://www.givingwhatwecan.org/post/2013/04/was-tutankhamun-a-billion-times-more-important-than-you/
The social cost of carbon is generally highly sensitive to the pure rate of time preference.
But:
“The national social costs of carbon of faster growing economies are less sensitive to the pure rate of time preference and more sensitive to the rate of risk aversion” from Tol
and from the Ricke paper:
“CSCCs were calculated using both exogenous and endogenous9 discounting. For conventional exogenous discounting, two discount rates were used, 3 and 5%. the results under endogenous discounting were calculated using two rates of pure time preference (ρ=1, 2%) and two values of elasticity of marginal utility of consumption (μ=0.7, 1.5) for four endogenous discounting parameterizations.”
So maybe it’s not highly sensitive to just discounting anymore.
But both the Ricke and the Tol paper use sensitivity analyses on their SCC and different parameterizations make SCC 10s to 1000s of $ per tonne and I guess they’ll use “sensible” ranges for this.
I would love others to look into this more as well and could well imagine new research uncovering facts that would dominate this analysis.