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Research background: An investment appraisal applies a single discount rate across all effects. However, this may be insufficient for heterogenous environmental impacts, mixing private and public goods as well as use and non-use values, where individuals may have multiple intertemporal preferences due to their duality to act as consumer or citizen.

Energy policy investments are usually evaluated using a cost-benefit analysis (CBA), which requires an estimation of the social discount rate (SDR). The choice of SDR can be crucial for the outcome of the appraisal, as energy-related investments generate long-term impacts affecting climate change. Once discounted, these impacts are highly sensitive to slight changes in the value of the SDR. Some countries (the UK and France) switched from a constant SDR to the declining rate scheme—a solution that limits the impact sensitivity. To our knowledge, none of the CEE countries apply DDR in CBA. While a constant SDR is a relatively well-established approach, declining SDRs are estimated to be used much less frequently, particularly for CEE EU member countries and energy policies. The rationale for the decline can rest on uncertainty over future discount rates, as shown by the approach developed by Weitzman and Gollier, which extends the classical Ramsey model. We applied this approach in our paper, as the Ramsey formula is the prevailing formula for EU countries' SDR estimates. We estimated a flat SDR via the Ramsey formula with Gollier's "precautionary term", and next, we calculated Weitzman's certainty equivalent rates for the 500-year horizon. Ramsey's SDRs, obtained using consumption growth rates dating back to 1996, varied between 6.77% for Lithuania and 2.95% for Czechia and declined by 0.15% on average (Gollier's term). Declining SDRs for the longest horizon dropped to approx. 0.5% (from 0.35% for Bulgaria to 0.67% for Poland), and the descent is deeper and faster when forward SDRs (following the UK Green Book approach) were considered (0.01% to 0.04%). The results are important for long-term policies regarding energy and climate change in CEE EU member countries, but they are still dependent on fossil fuels and experience an investment gap to fulfil EU climate goals. [ABSTRACT FROM AUTHOR]

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Copyright of Research Papers of the Wroclaw University of Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu is the property of Uniwersytet Ekonomiczny we Wroclawiu and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The paper analyses three basic features of utilitarianism: welfarism, sum-ranking and consequentialism which form the theoretical basis for economic net present value (costbenefit analysis decision criterion) for appraisal of intergenerational investments. The results show that the features are not theoretically sufficient due to inexistence of future generations' preferences, inability to apply Kaldor-Hicks potential compensation test and to assign future generations existence value. The paper suggests possible modifications of cost-benefit analysis to overcome the utilitarian failures, i.e. time-declining discount rate and introduction of deontological assumptions allowing to include present generation's altruistic preferences toward unborn people. [ABSTRACT FROM AUTHOR]

The problem of long term public investment appraisal, especially those affecting future generations is a complex issue consisting of the questions of the valuation of inputs and outputs, uncertainty and the problem of dealing with effects emerging in different moments of time. The last problem is usually solved by using discounting procedure. The paper aims at analyzing the definition of the discount rate in project appraisal procedure in the light of effectiveness and justice of intergenerational investment decision making. The analysis includes answering the question of the rationale for discounting in short perspective in certain appraisal procedures concerning efficient and just decision criteria. Then, selected ethical approaches to future generations rights are presented as the basis for establishing the connection between the discount rate and intergenerational justice. Finally, various levels of discount rate are analyzed assuming different rights assignment to present and future generations. [ABSTRACT FROM AUTHOR]