Valuing Your Grandchild—The Debate Over Climate Change Discount Rates


The Economist has an interesting article evaluating the arguments of critics of Britain's Stern Review on the Economics of Climate Change. One important question is should poor people living today pay to prevent climate change that would boost the incomes of far richer future generations?  To wit:

Mr Nordhaus [Yale University economist William Nordhaus] retorts that there are other ways to look at the ethics of inter-generational investment. One option would be to take into account the expected wealth of future generations. Global per capita consumption is increasing by 1.3% a year in real terms. At that rate today's average income per head, of $7,600, would rise to $94,000 by 2200. If climate change were to reduce global income by 13.8% over the same period (a figure derived from Stern), the average income per head would rise to $81,000 rather than $94,000. On that basis, says Mr Nordhaus, it would be fairer to constrain the income of future and richer generations, than to impose additional costs on a poorer generation today.

Mr Nordhaus does not contend that the world should do nothing about greenhouse-gas emissions. But he questions the confidence with which the Stern report concludes that lots of things should be done, and fast. The "central questions" about any policy response to global warming, says Mr Nordhaus, "how much, how fast, and how costly?remain open". As far as he and like-minded critics are concerned, the Stern report has informed the debate about climate change, but has not come anywhere near resolving it.

My initial thoughts on the Stern Review are here.