Policy ForumENVIRONMENTAL ECONOMICS

Determining Benefits and Costs for Future Generations

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Science  26 Jul 2013:
Vol. 341, Issue 6144, pp. 349-350
DOI: 10.1126/science.1235665

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Summary

In economic project analysis, the rate at which future benefits and costs are discounted relative to current values often determines whether a project passes the benefit-cost test. This is especially true of projects with long time horizons, such as those to reduce greenhouse gas (GHG) emissions. Whether the benefits of climate policies, which can last for centuries, outweigh the costs, many of which are borne today, is especially sensitive to the rate at which future benefits are discounted. This is also true of other policies, e.g., affecting nuclear waste disposal or the construction of long-lived infrastructure.