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The choice of discount rate has a significant impact on net benefit estimates when costs today have benefits over long time horizons. Standard U.S. government practice for cost–benefit analysis is to bound such analysis using two alternative rates. These rates are meant to represent the rate of return paid by capital investment and the rate received by consumers. Previous work has shown this approach legitimately bounds the analysis—but only when future benefits accrue directly to consumers either in a two-period model or as a perpetuity. We generalize to consider arbitrary patterns of future benefits, accruing either directly to consumers or indirectly through future investment. We derive an expression for the appropriate discount rate and show that it converges to the consumption rate for benefits increasingly far into the future. More generally, the bounding rates depend on the temporal pattern of the undiscounted dollars. As an application, we estimate the appropriate discount rate for climate change damages from carbon dioxide, finding it lies in a narrow range (±0.5 percent) around the consumer rate of interest. [ABSTRACT FROM AUTHOR]

The author discusses the damages resulting from climate change focusing on improved models of climate change damage and its benefits in terms of social cost of carbon estimates. Topics include the trade-offs between economic activity and environmental protection called cost-benefit analysis (CBA), a report by Hsiang and colleagues on the estimates of climate change damages, and the recommendations made by the U.S. National Academy of Sciences panel on the damage estimates for 2017.

The article presents the discussion on the prospect of average global warming exceed. Topics include supplementing mitigation and adaptation with solar geoengineering (SG); carbon dioxide (CO2) removal reversing the flow of greenhouse gases into the atmosphere; and social welfare, equity and justice, social, and political implications.

The authors discuss using and improving the social cost of carbon (SCC), which is a tool that estimates the dollar value of reduced climate change damages associated with the reduction in carbon dioxide (CO2) emissions. They discuss the use of SCC in government cost-benefit analysis (CBA), an institutional process for regular SCC review and revision when used in U.S. policy-making, and selecting integrated assessment models (IAMs) for use in SCC for government CBA.

A response is presented to a letter to the editor in the same issue by Danny Cullenward and Michael Wara regarding the authors' article "Carbon Market Lessons and Global Policy Outlook" from the March 21, 2014 issue.

The article discusses the global carbon trading market, focusing on analysis of its successes and failures and an outlook on carbon market policy as of March 2014. Topics include the European Union's (EU) Emissions Trading System (EU-ETS), the opening of carbon trading programs around the world including in California, Quebec, and China, and efforts to link programs and mix policies.

Our efforts to put the brakes on climate change or adapt to a warming climate present a fundamental tradeoff between costs borne today and benefits that accrue to the children and grandchildren of the current generation. In making investments today that affect future generations' prospects, we need to think carefully about how we value their welfare compared to our own. A common economic formula recommends giving up only 5 cents today for every dollar of benefits 100 years in the future; we call this discounting the future. Underlying this approach is the assumption that future generations will be much better off than our own, just as we are much wealthier than our ancestors were. Would our descendants' agree with this approach? Are there reasons to put more value on future benefits? William Pizer, Ben Groom, and Simon Dietz discuss three possible reasons that we might put a higher value on future benefits. First, people disagree considerably about the correct discount rate. Other plausible interpretations of society's preferences or observed data could increase the weight we place on future benefits by as much as a factor of five. Second, we may have failed to correctly value future climate change impacts, particularly those related to the loss of environmental amenities that have no close monetary substitutes. Third, we may not be properly valuing the risk that a warming climate could cause sudden and catastrophic changes that would drastically alter the size of the population. Ultimately, the authors write, many of the choices about how we value future generations' welfare come down to ethical questions, and many of the decisions we must make come down to societal preferences--all of which will be difficult to extract from data or theory. [ABSTRACT FROM AUTHOR]

We review the state of knowledge concerning international CO2 emission transfers associated particularly with trade in energy-intensive goods and concerns about carbon leakage arising from climate policies. The historical increase in aggregate emission transfers from developing to developed countries peaked around 2006 and declined since. Studies find no evidence that climate policies lead to carbon leakage, but this is partly due to shielding of key industrial sectors, which is incompatible with deep decarbonization. Alternative or complementary consumption-based approaches areneeded. Private sector initiatives to trace and address carbon emissions throughout supply chains have grown substantially but cannot compensate for inadequate policy. Three main price-based approaches to tackling carbon leakage are potentially compatible with international trade rules: border adjustments on imports, carbon consumption charges, and climate excise contributions combined with emissions trading. We also consider standards and public procurement options to tackle embodied emissions. Finally, we discuss proposals for carbon clubs involving cooperation among a limited set of countries. [ABSTRACT FROM AUTHOR]

Abstract: Because conventional command-and-control environmental regulation often performs poorly in developing countries, policymakers are increasingly experimenting with alternatives, including voluntary regulatory programs. Research in industrialized countries suggests that such programs are sometimes ineffective, because they mainly attract relatively clean participants free-riding on unrelated pollution control investments. We use plant-level data on more than 100,000 facilities to analyze the Clean Industry Program, Mexico’s flagship voluntary regulatory initiative. We seek to identify the drivers of participation and to determine whether the program improves participants’ environmental performance. Using data from the program’s first decade, we find that plants recently fined by environmental regulators were more likely to participate, but that after graduating from the program, participants were not fined at a substantially lower rate than nonparticipants. These results suggest that although the Clean Industry Program attracted dirty plants under pressure from regulators, it did not have a large, lasting impact on their environmental performance. [ABSTRACT FROM AUTHOR]

This paper compares, qualitatively and quantitatively, the welfare effects of emissions taxes, auctioned emissions permits, and free (grandfathered) permits, when technological innovation is endogenous. We find that there is no unambiguous case for preferring any of these policy instruments. The relative welfare ranking of instruments depends on the costs of innovation, the extent to which innovations can be imitated, the slope and level of the marginal environmental benefit function, and the number of polluting firms. We illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not. [Copyright &y& Elsevier]

Recent economic literature strongly supports the use of a consumption discount rate over a capital rate of return over longer time horizons (6, 7) and shows that lower discount rates are appropriate for valuing long-term effects (8, 9). It also ends the use of the 7% discount rate in regulatory analysis, replacing capital-based discount rates with a shadow price of capital approach that bounds the potential impacts of public interventions on capital (10). Consistent with these principles, the US Office of Management and Budget's (OMB's) proposed update (1) uses more recent economic data to lower the consumption-based discount rate from 3% to close to 2%. [Extracted from the article]

Focuses on the emergence of an evolving science of ecological forecasting and describes how it could have an expanding role in ecological management. Improvement of planning and decision-making by accessing reliable forecasts of ecosystem state, ecosystem services and natural capital; Importance of interdisciplinary linkages because of the climate and societal controls on ecosystems.

Behavioral responses to environmental risks create gains and losses. We use high-frequency datasets to elucidate such behavior responses against air pollution and find a "double-peaked" time pattern in reducing outdoor exposure and in increasing electricity consumption. Despite that one standard deviation increase in the Air Quality Index induces 2% less outdoor population and 6% more household electricity consumption at peak, most responses fail to match with the intra-day pollution peaks, implying ineffective exposure avoidance. We find an unbalanced trade-off between health benefits and energy co-damages. The behavior-induced change in annual residential power consumption (+1.01% to +1.20%) is estimated to be 20 times more than that in the population-based exposure (-0.02% to -0.05%), and generates 0.13-0.15 million more metric tons of citywide carbon emissions. Our results imply that by targeting peak pollution periods, policies can shrink the trade-off imbalance and achieve mutual improvements in exposure reduction and energy conservation., Competing Interests: The authors declare no competing interests., (© 2022 The Authors.)

The social cost of carbon dioxide (SC-CO 2 ) measures the monetized value of the damages to society caused by an incremental metric tonne of CO 2 emissions and is a key metric informing climate policy. Used by governments and other decision-makers in benefit-cost analysis for over a decade, SC-CO 2 estimates draw on climate science, economics, demography and other disciplines. However, a 2017 report by the US National Academies of Sciences, Engineering, and Medicine 1 (NASEM) highlighted that current SC-CO 2 estimates no longer reflect the latest research. The report provided a series of recommendations for improving the scientific basis, transparency and uncertainty characterization of SC-CO 2 estimates. Here we show that improved probabilistic socioeconomic projections, climate models, damage functions, and discounting methods that collectively reflect theoretically consistent valuation of risk, substantially increase estimates of the SC-CO 2 . Our preferred mean SC-CO 2 estimate is $185 per tonne of CO 2 ($44-$413 per tCO 2 : 5%-95% range, 2020 US dollars) at a near-term risk-free discount rate of 2%, a value 3.6 times higher than the US government's current value of $51 per tCO 2 . Our estimates incorporate updated scientific understanding throughout all components of SC-CO 2 estimation in the new open-source Greenhouse Gas Impact Value Estimator (GIVE) model, in a manner fully responsive to the near-term NASEM recommendations. Our higher SC-CO 2 values, compared with estimates currently used in policy evaluation, substantially increase the estimated benefits of greenhouse gas mitigation and thereby increase the expected net benefits of more stringent climate policies., (© 2022. The Author(s).)

Estimating the impact of climate change on energy use across the globe is essential for analysis of both mitigation and adaptation policies. Yet existing empirical estimates are concentrated in Western countries, especially the United States. We use daily data on household electricity consumption to estimate how electricity consumption would change in Shanghai in the context of climate change. For colder days <7 °C, a 1 °C increase in daily temperature reduces electricity consumption by 2.8%. On warm days >25 °C, a 1 °C increase in daily temperatures leads to a 14.5% increase in electricity consumption. As income increases, households' weather sensitivity remains the same for hotter days in the summer but increases during the winter. We use this estimated behavior in conjunction with a collection of downscaled global climate models (GCMs) to construct a relationship between future annual global mean surface temperature (GMST) changes and annual residential electricity consumption. We find that annual electricity consumption increases by 9.2% per +1 °C in annual GMST. In comparison, annual peak electricity use increases by as much as 36.1% per +1 °C in annual GMST. Although most accurate for Shanghai, our findings could be most credibly extended to the urban areas in the Yangtze River Delta, covering roughly one-fifth of China's urban population and one-fourth of the gross domestic product., Competing Interests: The authors declare no conflict of interest.