Inflation: If we assume a zero discount rate, then just considering that the money returned has less purchasing power than the money used forces a positive discount rate. Proved reserves are the minimum volume of oil a reservoir is expected to produce. Proved reserves that are being added due to frac’ing and horizontal wells in shale and tight rock plays weren’t reserves of any kind prior to the shale frac’ing revolution. . Within the Ramsey Rule, which is the basic setting for our paper, the real risk-free social discount rate is given by the utility discount rate + elasticity of marginal utility * expected growth rate in consumption. In practice, nearly all governments apply real discount rates and Nordhaus follows this practice. riots over cigarette taxes because everyone knows that cigarettes are not healthy for you and so can’t get that worked up over a tax that makes it more difficult for people to afford them. For marginal peoples, this may cause earlier death, greater child mortality, etc. it must be very courageous to try and forcast a discount rate beyond the forseeable future for whole populations.
A 100% discount rate doesn’t mean $0 present value. Portable storm surge reduction is the way to go.
Here’s a definition. Within a certain range of values (say 0-6%) it really comes down to your perspective on how policy should be made, the lower the rate you have the more pro-social your point of view and the higher the rate the more pro-business your point of view. Only now is a packet so expensive that very few people can afford to smoke. At least with a well, you spend some money and you go and drill the site. They want much richer descendants who are capable of adapting, and are certainly not expecting the static or deteriorating situation elites (rightly or wrongly) fear.
This is because of the differences between medium-term and intergenerational discounting.
You can of course calculate the discount rate that results in a breakeven NPV and therefore implies a don’t-invest decision. "[22] Nordhaus takes seriously the potentially catastrophic impacts of climate change.
This is no different than and oil & gas exploration company risking capital on a wildcat well because the outcome is uncertain, just as it would be with any mitigation measure. There is no problem with this, but it is still a discounting choice. For those keeping score at home, a $351/ton carbon tax works out to a gasoline tax of more than $3 per gallon. [])), +((!+[]+(!![])+!![]+!![]+!![]+!![]+!![]+!![]+[])+(!+[]+(!![])+!![])+(!+[]+(!![])+!![]+!![]+!![]+!![]+!![]+!![])+(!+[]-(!![]))+(!+[]+(!![])+!![]+!![])+(+!![])+(!+[]+(!![])+!![]+!![]+!![]+!![])+(!+[]+(!![])+!![]+!![])+(!+[]+(!![])+!![]+!![]+!![]+!![]+!![]))/+((+!![]+[])+(!+[]+(!![])+!![]+!![]+!![]+!![]+!![])+(!+[]+(!![])+!![]+!![]+!![])+(!+[]+(!![])+!![]+!![]+!![]+!![])+(!+[]+(!![])+!![])+(!+[]+(!![])+!![]+!![])+(!+[]+(!![])+!![]+!![]+!![]+!![]+!![]+!![])+(+!![])+(!+[]-(!! But we will, today, bear the costs of reducing such emissions. It’s only a matter of time, and probably not as much as everybody would like to think. Mirowski offers a powerful critique of neoclassical economics. In the latter, inflation is stripped out and the discount rate is applied to cash flows estimated in $2019.”.
Which of these esteemed gentlemen is correct?
"The Political Business Cycle,", Nobel Memorial Prize in Economic Sciences, BBVA Foundation Frontiers of Knowledge Award, School of Forestry and Environmental Studies, United States National Academy of Sciences, Royal Swedish Academy of Engineering Sciences, "2018 Nobel in Economics Awarded to William Nordhaus and Paul Romer", "Brothers Battle Climate Change on Two Fronts", "Sandia Peak Ski & Tramway - History & Technology", "William Dawbney Nordhaus Will Marry Barbara Feise", "Economist Says Best Climate Fix A Tough Sell, But Worth It", "Yale's William Nordhaus wins 2018 Nobel Prize in Economic Sciences", "Is Growth Obsolete? In fact not even ‘free’ in as much we are supposed to pay them!
There are also major problems with the definition of “social cost of carbon” that make the term wholly unscientific and non-economic. In one of his slides, he shows that 4°C of warming would mean that approximately 6.7 billion people die, which is incompatible with the idea that GDP would only be reduced by a few percent. A low discount rate implies that you can’t earn much on your money between now and when you expect a future benefit, so you don’t discount it very much. Estimating the costs of something 80 plus years out is a rather futile exercise at best, and destructive at worst.
We “disentangled” the discount rate by asking experts about expected future economic growth rates, their utility discount rate and their elasticity of marginal utility of consumption as well as their chosen discount rate. Ridiculous.
intergovernmental panel on climate change, farce of this alleged scientific and empirical process.
“In places where money needed to be spent on sea walls…”.
Discounting ‘life’: The money used (wasted?)
(That’s the “maximum” scenario.) That would at least cover several historic period of economic change and even it gives no guarantee that future technology changes might not be more radical. Unfortunately most of those HBEs are (if trends continue) being used on uploading selfies to social media, cat videos, and porn (not necessarily in that order) instead of actual economically beneficial work.
[4], Nordhaus was born in Albuquerque, New Mexico, the son of Virginia (Riggs) and Robert J. Nordhaus,[5] who co-founded the Sandia Peak Tramway. This Nordhaus character is patently in orbit around Planet Lala but still making himself irksome. A question for him, if he’s still reading: What do you think your panel of experts would predict for the average annual per-capita percentage increase in gross world product (say, on an inflation-adjusted PPP basis) from now to 2100? P.S. "William D. Nordhaus, Distinguished Fellow". Greatly appreciated. In fact, the 1.6 percent would not look too bad, if one completely ignored the human brain equivalents from computers (which would completely invalidate one’s prediction): https://markbahner.typepad.com/random_thoughts/2014/01/population-growth-rate-vs-per-capita-gdp-growth-rate.html.
No sane 20 year old would accept any amount to be 80.
"Do Real Output and Real Wage Measures Capture Reality?
The author makes a case for a low discount rate which would be more relevant if there were any future value to be discounted and netted against known current investment cash flows. Also, I would like to add my voice to those who have already said what a pleasure it is to read such considered and intelligent discussion. They expect to emulate China and join the developing world. – EU will face a shortage of 800,000 IT workers by 2020 Running out of coal?
Why not redress the balance and it may be found that what we have achieved over the past couple of centuries has been a wonderful boom to humanity and has been highly cost effective. This is because many believe that the intrinsic worth of life itself should not be discounted. So let’s try a different approach. From: https://apiumhub.com/tech-blog-barcelona/tech-of-the-future-technology-predictions/ Nordhaus thinks climate change requires only a modest response now, with more significant action delayed for decades (read more in A Question of Balance and The Climate Casino). Any long term discount rate applied to oil reserve values before the shale fracking revolution produced an essentially meaningless result.
We talk about this quite a bit in the paper. Respectfully, you need to get out of your ivory tower and understand how the real world looks at this problem. For the exercise to be meaningful you first have to reduce uncertainty about the magnitude of the future cash flows. 1.6% real is pretty consistent with realised growth over the 20th Century; 4.8% real growth would require huge technological innovations. ==== In 2007, Nordhaus, who has done several studies on the economics of global warming, criticized the Stern Review for its use of a low discount rate: The Review's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today's market place. Our median survey response of 2% is explicitly risk-free, comparable with the 1.2% yield offered by TIPS.
University of Chicago Press for the National Bureau of Economic Research. When we value proved oil reserves, it is a risked valuation.
Should you buy an air-conditioner, or should you contribute the money to a global scheme to reduce carbon? Yale economist William Nordhaus, for instance, uses a discount rate of 3 percent, so his modeling tells us that all we need at the moment is a modest (around $5/ton) carbon tax.
My expertise in valuing private and publicly-traded companies has been sought out by top institutions, including the World Bank, and I have appeared on national TV programs such as The Nightly Business Report and in the international media.
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