International climate change negotiations have centered on which countries are willing to pay, how much, and when. Putting aside bickering over who will pick up the tab, the most central question that we need to ask is: What are we willing to pay to avoid serious harm to our children and grandchildren?
Some economists believe the answer is to “discount” the effects of climate change depending on how far in the future they fall. In effect, the further out in time something happens, the less important it is. Discounting borrows the logic of the marketplace where $100 ten years from now is worth less than $100 today — given a choice, you’d always prefer the money sooner.
Over longer time horizons, discounting has some pretty serious effects. Using a discounting model, climate change damages that occur fifty years from now count 1/12 as much as the same harm today. Floods, fires, and storm surges that are faced by our grandchildren count only 1/42 as much as the same problems today.
Many people find discounting deeply unintuitive. It seems miserly to refuse to spend a few thousand dollars to avoid causing someone one million dollars of harm a hundred years from now. In fact, many studies have shown that people, when asked about the importance of future dangers, treat a harm 200 years from now essentially the same as a harm 300 years from now, even though conventional discounting would require the more distant harm to be given much less weight.
There is large scale disagreement even among top economists on the justifications for discounting: how it should be conducted, and what the rates should be. Different discount rates or processes can mean the difference between immediate and dramatic action to reduce emissions or a more gradual “ramping up” of emission reduction efforts.
In 45 to 50 years the current generation of adults will be at the end their lives. Today’s children will be at the peaks of their careers, raising families of their own, maybe thinking about retiring. That is when the more severe effects of climate change will begin to kick-in — droughts, floods, rising sea levels — potentially causing drastic interruptions in their lives.
We need to decide how much we are willing to pay to stop that from happening.
While some economists would like to treat discounting as a purely a technical matter, many recognize that there are deep moral issues involved, and studying stock returns or interest rates on government bonds cannot give use the answer. We need to have a serious conversation about how much of a climate change debt we want to leave our kids to feed the fossil-fuel lifestyle we lead today.
And perhaps most importantly, we need to recognize the deep uncertainty around these questions — we don’t know the right discount rate, and we don’t know how we will feel about it in the future. To avoid throwing away the future and then changing our minds, that uncertainty counsels for lower rates, maybe even the lowest possible rate over the long term.
Our generation has benefited from the cheap electricity prices borne of 120 years of dirty power plants. The price tag to get started cleaning up our act is relatively small (about $10 per month). Just as our grandparents had us in mind when they made sacrifices and investments for our sake, we should give proper consideration to our decedents who will inherit the world we leave them.