Zero discounting and global warming
In the blogosphere, anti-Stern, high discount rate advocates tend to come from the political right. The left is more pro-Stern and pro- low discount rate. In a forthcoming article in the University of Chicago Law Review, I argue that this distribution of opinion does not follow naturally:
Counterintuitively, a concern for the distant future sometimes will militate against some environmental investments. For instance some of the costs of global warming appear to be "one-time" in nature, such as the costs of relocating coastal and inland settlements…At the same time stopping or limiting global warming might lower permanently the rate of economic growth. When the rate of intergenerational discount is sufficiently low, maximizing the growth rate tends to take priority over avoiding one-time expenditures and one-time adjustments. Even if those one-time expenditures are large, we will earn back that value over time and more, due to the logic of investment compounding.
Alternatively, other environmental issues will become more important. For instance many scientists have argued that global warming will increase the number of virulent and persistent storms. This can limit the prospects for economic growth (this is illustrative; I am not seeking to debate the facts). [Insofar as we are utilitarians] when it comes to global warming, we should be more concerned with the growth-affecting elements of the phenomenon, and less concerned with the one-off effects.
If the costs of moving away carbon are one-time in nature, and the benefits of energy alternatives show up in the growth rate, a zero discount rate encourages global warming activism. Alternatively, to the extent the costs of moving away from carbon lower the growth rate and the benefits are one-time, the logic flips and a zero discount rate encourages passivity.
I am aware how much a low discount rate can skew expected value calculations. I nonetheless believe that current debates are overestimating the importance of the choice of discount rate. I hope to soon discuss the truly important factors in reaching a policy decision.
By the way, here is some rhetoric on global warming.