How certain are we about the certainty-equivalent long term social discount rate?

Theoretical arguments for using a term structure of social discount rates (SDR) that declines with the time horizon have influenced government guidelines in the US and Europe. The certainty equivalent discount rate that often underpins this guidance embodies uncertainty in the primitives of the SDR, such as growth. For distant time horizons the probability distributions of these primitives are ambiguous and the certainty equivalent itself is uncertain. Yet, if a limited set of characteristics of the unknown probability distributions can be agreed upon, ‘sharp’ upper and lower bounds can be defined for the certainty-equivalent SDR. Unfortunately, even with considerable agreement on these features, these bounds are widely spread for horizons beyond 75 years. So while estimates of the present value of intergenerational impacts, including the social cost of carbon, can be bounded in the presence of this ambiguity, they typically remain so imprecise as to provide little practical guidance.     

THE IMPACT OF HIGH INTEREST RATES ON OPTIMUM MULTIPLE OBJECTIVE DESIGN OF SURFACE RUNOFF URBAN DRAINAGE SYSTEMS1

ABSTRACT. This research examines the impact of high rates of interest upon the least cost system design for urban drainage systems when water quality is a critical parameter. Results of examination of twelve alternative system designs in a case study watershed indicate the least cost study design is highly sensitive to the rate of interest, but not sensitive to the water quality parameters. When the high rates of interest currently prevalent are introduced into the model those systems which contain open channel collection components are selected as the least cost system. At low rates of interest pipeline collection components are selected as the least cost system. Holding pond components of system design are cost effective at several levels of water quality. They are neutral to the rate of interest so they are incorporated in least cost systems at all the levels of interest rates. The results of the study indicate that at the current high rates of interest open channel collection systems and holding ponds are cost effective system components to achieve selected levels of water quality in urban drainage system design.     

The idea of sustainable development

In this lecture, I demonstrate how very different macroeconomic history begins to look if Nature is included as a capital asset in production activities. The tentative conclusions I draw from the evidence are: (1) high population growth in the world’s poorest regions (South Asia and sub-Saharan Africa) has been an obstacle to the achievement of sustainable economic development there; relatedly, (2) when population growth is taken into account, the accumulation of manufactured capital, knowledge, and human capital (health and education) has not compensated for the degradation of natural capital in South Asia and sub-Saharan Africa and, in all probability, even in the UK and the US; (3) China is possibly an exception to (1) and (2). This article is based on the Keynote Lecture delivered at the international symposium on “Sustainability in an Unequal World”, held in Tokyo on November 24, 2006. The exposition relies on my book, Economics: A Very Short Introduction, Oxford University Press, Oxford, 2007. The author is the Frank Ramsey Professor of Economics at the University of Cambridge and a Fellow of St. John’s College, Cambridge.     

Accounting for time in Mitigating Global Warming through land-use change and forestry

Many proposed activities formitigating global warming in the land-use change and forestry(LUCF) sector differ from measures to avoid fossilfuel emissions because carbon (C) may be held out ofthe atmosphere only temporarily. In addition, thetiming of the effects is usually different. Many LUCFactivities alter C fluxes to and from the atmosphereseveral decades into the future, whereas fossil fuelemissions avoidance has immediate effects. Non-CO₂ greenhouse gases (GHGs), which are animportant part of emissions from deforestation inlow-latitude regions, also pose complications forcomparisons between fossil fuel and LUCF, since themechanism generally used to compare these gases(global warming potentials) assumes simultaneousemissions. A common numeraire is needed to expressglobal warming mitigation benefits of different kindsof projects, such as fossil fuel emissions reduction,C sequestration in forest plantations, avoideddeforestation by creating protected areas and throughpolicy changes to slow rates of land-use changes suchas clearing. Megagram (Mg)-year (also known as`ton-year') accounting provides a mechanism forexpressing the benefits of activities such as these ona consistent basis. One can calculate the atmosphericload of each GHG that will be present in each year,expressed as C in the form of CO₂ and itsinstantaneous impact equivalent contributed by othergases. The atmospheric load of CO₂-equivalent Cpresent over a time horizon is a possible indicator ofthe climatic impact of the emission that placed thisload in the atmosphere. Conversely, this index alsoprovides a measure of the benefit of notproducing the emission. One accounting methodcompares sequestered CO₂ in trees with theCO₂ that would be in the atmosphere had thesequestration project not been undertaken, whileanother method (used in this paper) compares theatmospheric load of C (or equivalent in non-CO₂GHGs) in both project and no-project scenarios.Time preference, expressed by means of a discount rateon C, can be applied to Mg-year equivalencecalculations to allow societal decisions regarding thevalue of time to be integrated into the system forcalculating global warming impacts and benefits. Giving a high value to time, either by raising thediscount rate or by shortening the time horizon,increases the value attributed to temporarysequestration (such as many forest plantationprojects). A high value for time also favorsmitigation measures that have rapid effects (such asslowing deforestation rates) as compared to measuresthat only affect emissions years in the future (suchas creating protected areas in countries with largeareas of remaining forest). Decisions on temporalissues will guide mitigation efforts towards optionsthat may or may not be desirable on the basis ofsocial and environmental effects in spheres other thanglobal warming. How sustainable development criteriaare incorporated into the approval and creditingsystems for activities under the Kyoto Protocol willdetermine the overall environmental and social impactsof pending decisions on temporal issues.     

Crediting uncertain ecosystem services in a market

The margin of safety (MOS) approach is an increasingly prevalent tool for ensuring the integrity of market-based programs for providing ecosystem services. Over-crediting is reduced by setting aside mean estimates of uncertain services in favor of a more conservative estimate. Like many environmental policy problems, ecosystem service markets involve the aggregation of uncertainty over multiple scales, e.g. from landowners to market intermediaries to the overall market. We examine how the MOS instrument affects, and is affected by, an ecosystem services market. We show that the common bottom-up approach of imposing risk preferences at a local, disaggregated level—held over from earlier development in the context of toxics and command and control-style health risk regulation—leads to several unintended consequences. Furthermore, discounting landowner services can actually increase their profits, conditional on the elasticity of credit demand. We illustrate theoretical insights with an empirical application to greenhouse gas offset crediting in agriculture.     

Climate Change and Local Pollution Effects – An Integrated Approach

Few studies on measures for mitigation of damage caused by man-made emissions to the environment have tried to consider all major effects. We illustrate the importance of an integrated approach by estimating costs and benefits of a proposed energy saving program for Hungary, originally designed to reduce CO2 emissions. The dominant benefit of implementing the program is likely to be reduced health damage from local pollutants. Also reduced costs of material damage and to a lesser extent vegetation damage contribute to make the net benefit considerable. Compared to the reduction in these local and regional effects, the benefits from reducing greenhouse gases are likely to be minor. Since local effects in general occur much earlier after measures have been implemented than effects of increased emissions of greenhouse gases, inclusion of local effects makes evaluation of climate policy less dependent on the choice of discount rate. In our opinion, similar results are likely for many measures originally designed to reduce emissions of greenhouse gases particularly in some areas in developing countries with high local pollution levels. Main uncertainties in the analysis, e.g. in the relationships between damage and pollution level, are discussed.     

Labor market estimates of the senior discount for the value of statistical life

This article develops the first measures of age–industry job risks to examine the age variations in the value of statistical life. Because of the greater risk vulnerability of older workers, they face flatter wage-risk gradients than younger workers, which we show to be the case empirically. Accounting for this heterogeneity in hedonic market equilibria leads to estimates of the value of statistical life–age relationship that follows an inverted U shape. The estimates of the value of statistical life range from $6.4 million for younger workers to a peak of $9.0 million for those aged 35–44, and then a decline to $3.8 million for those aged 55–62. The decline of the estimated value of statistical life with age is consistent with there being some senior discount in the Clear Skies Initiative analysis.     

WATER TREATMENT PLANT STAGING POLICY1

Economics of treatment plant staging or capacity expansions is governed by the initial water demand rate, Q₀; the anticipated demand growth rate, G; the discount rate, D; the cost of operation, maintenance, and repair (OMR); the useful plant life, T, as a function of the quality of design, construction, and OMR; the treatment plant load factor, L_f; the salvage value of the plant at the end of the project period; the efficiency of the plant-staging design, eta; and the length of the project period, T_s. Various staging policies are investigated to find an optimal policy. The desirability of adopting a staging policy is governed by the magnitude of percent savings that can be achieved by adopting this policy instead of a no-staging policy. A detailed analysis of the problem shows that the percent savings because of staging increase with an increase in Q, G, D, T, and eta;. A reduction in the plant load factor increases the total costs. Information about the effect of variation in the parameters should help the planner and designer to work out an economical schedule of treatment plant capacity expansions.     

环境污染的国际转移与城乡转移

从广义上考察了环境污染的国际转移与城乡转移,包括可见的和不可见的污染转移。分析了污染转移的不同途径,从环境质量需求和个人贴现率两个方面分析了污染转移的经济机制,以此为基础,探讨了防止污染转移的对策。     

使用者成本法的完善与美国油气资源使用者成本的估算

论文通过对使用者成本法的关键变量折现率的文献梳理,提出使用社会折现率来消除目前使用者成本法估算中对折现率选取的随意性,在对美国社会折现率估算的基础上,运用使用者成本法对美国油气资源使用者成本进行估算,发现美国从2000年以来,油气资源使用者成本上升显著,从2000年的185.08×10⁸美元上升到2008年的2 264.28×10⁸美元,并且发现油气资源使用者成本的涨落受社会折现率的影响较大。用美国油气资源权利金实缴数据同其使用者成本进行比较,得出美国油气资源权利金的增长速度慢于其使用者成本的增长速度,相关费金对使用者成本的补偿程度在下降,有偿使用费金对使用者成本的补偿比例从2002年高位的42.68%下降到2008年的10.83%。