Discounting and Global Environmental Change

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Abstract

Discounting plays a central role in decisions about global environmental change that affect the well-being of future generations. Discounting the future more heavily tilts decisions toward the present, making it less likely that society will undertake actions to mitigate climate change or other global environmental change. This article reviews the standard economics approach to discounting that emerges from solving for optimal savings and investment through time. Discounting depends on the pure rate of time preference and differences in consumption levels across time, giving rise to different marginal utilities of consumption. Discounting for problems like climate change that impact future generations involves an ethical dimension. This article includes discussions of ethical dimensions of discounting related to intragenerational and intergenerational equity and also covers behavioral economics, ecological economics, and mainstream economics approaches to discounting. The article closes with a review of the debates over discounting in climate change policy.

Original languageEnglish (US)
Pages (from-to)691-717
Number of pages27
JournalAnnual Review of Environment and Resources
Volume46
DOIs
StatePublished - 2021

Bibliographical note

Publisher Copyright:
© 2021 Annual Reviews Inc.. All rights reserved.

Keywords

  • Ramsey discounting equation
  • climate change
  • discounting
  • hyperbolic discounting
  • intergenerational equity
  • uncertainty

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