We assess how changes in the scientific consensus around equilibrium climate sensitivity (ECS), as captured by the IPCC's Fifth (AR5) and Sixth (AR6) Assessment Reports, impact policymakers' willingness to take climate action. Taking the IPCC's reports at face value, the ECS estimates in AR6 would have lowered a policymaker's willingness to act on climate relative to AR5 due to a narrower "likely" range. However, Bayesian updating may reverse this conclusion. An accuracy-motivated policymaker who was not convinced to take greater climate action by the evidence in AR5 may be more likely to increase their investment in clean energy by the evidence in AR6.

We critically assess an almost universal Net Present Value (NPV) practice. In addition to the central NPV, analysts frequently also report multiple additional values in what is commonly referred to as NPV ‘sensitivity analysis’. This practice is often justified with reference to the future net benefits to the asset being uncertain, because the correct discounting model is difficult to identify, or for other reasons. The purpose of this paper is to explain clearly why, despite the fact that this is recommended as best practice across multiple prestigious and influential sources, the reporting of more than one NPV value either lacks sufficient theoretical support or reflects decisions taken at an inappropriate organizational level. By providing additional quantification rather than recognizing that investment decisions require qualitative managerial judgement, this practice may confuse decision-makers more than help them. We illustrate this point in relation to a number of current guidelines across the public and private sectors and with particular focus on the US Environmental Protection Agency’s latest estimates of the Social Cost of Carbon.

The estimated value to society from climate change mitigation is highly sensitive to the long-term social discount rate. Governmental discounting guidance has almost exclusively been influenced by economists, although it is not clear that they possess any special expertise on intergenerational ethics. Here, by contrast, we report the views of philosophers, who are the most trained in ethical matters. We show that, as a group, these experts offer strong support for a real social discount rate of 2%, a value that is also predominantly backed by economists. We find multidisciplinary support for climate policy paths in line with the United Nations climate targets when views on discounting determinants are applied within a recent update of the DICE integrated assessment model. However, this apparent agreement hides important differences in views on how the ethics of intergenerational welfare can be better incorporated into climate policy evaluation. Economists often dominate public climate policy discussions, such as those on the proper social discount rate and optimal climate pathways. This Article shows that philosophers, experts in underlying ethical matters, generally agree with economists but put more weight on various normative considerations.

This compendium is a product of the Commission’s Green Recovery Task Force, a group of world-renowned economists, academics, environmentalists, and private sector experts convened to discuss and provide recommendations on how to build economic resilience and reduce inequality as we recover from the COVID-19 pandemic and work towards a more equitable, sustainable, and inclusive future.

The appraisal of public investments is subject to formal guidelines which often require input prices, such as forecasted energy prices. Using Danish guidelines as a case study, we explore the discounting assumptions in these input prices and find rates ranging from 2.97% to 17.5%, markedly different from the headline discount rate of 3.5%. This is not unique to Denmark and discrepancy in embedded discount rates can lead to false rejection of projects. We offer three possible explanations for such differences, based on positions on how the discount rate should be set.

The estimated values to society from long-term public projects, including climate change mitigation and infrastructure construction, are highly sensitive to the social discount rate (SDR) employed. Governmental guidance on social discounting has predominantly been based on input from expert economists. It is not clear, however, that economists possess any special expertise on the ethical issues that underpin long-term societal decision-making. This study compares expert economists' views on key components of the long-term SDR with those of a disciplinary group of experts who may be deemed most trained on ethical matters: philosophers. The results indicate that both expert groups provide surprisingly similar recommendations on these components and on the SDR itself, with a real SDR recommendation of 2% receiving most support in both disciplines. An analysis of qualitative remarks shows areas of broad agreement and yet distinct differences in rationales. While economists provide numerous technical extensions within a consequentialist Discounted Utilitarian approach, philosophers advocate more strongly for alternative ethical approaches to standard Utilitarian calculus. In the politicized world of long-term decision-making, this paper illustrates how more inclusive and deliberative approaches to complex issues such as intergenerational justice can guide more nuanced decision-making today and lead to multidisciplinary support for climate action.

In this paper, we show that the way in which fund managers are compensated can, under plausible conditions, lead them to act in a way that does not maximise the wellbeing of their clients. Due to performance bonuses in fund managers' rewards, there is a highly non-linear relationship between the wealth of the client and the fees that the manager receives. We demonstrate that jumps in equity returns can lead to a conflict of interest between the investor and the manager in such a setting. Specifically, the managers' option-type payment structure can incentivise them to not account for the downside risk induced by jumps, especially if the fund manager is only in post for a few years; thus managers may pursue a more aggressive asset allocation strategy than their clients desire. Our key policy recommendation is that regulators should consider imposing a negative fund fee in times of very poor absolute fund performance to mitigate against suboptimal fund management asset allocation decisions.

Abstract The estimated value to society from climate change mitigation is highly sensitive to the long-term social discount rate (SDR). While it is not clear that they possess any special expertise on the ethics of intergenerational welfare, governmental discounting guidance has almost exclusively been influenced by economists. Our study, by contrast, reports the views of a disciplinary group of experts who are most trained in ethical matters; philosophers. We show that, as a group, these experts offer strong support for a real SDR of 2%; a value that is also predominantly backed by economists. We find multidisciplinary support for climate policy paths in line with the UN climate targets when views on discounting determinants are applied within a recent update of the DICE Integrated Assessment Model. However, this apparent agreement hides important differences in views on how the ethics of intergenerational welfare can be better incorporated into climate policy evaluation.

Governments across the world are coming under increasing pressure to invest heavily in projects that have maturities of decades or even centuries. Key areas of concern include climate change mitigation, environmental and biodiversity protection, nuclear decommissioning, enhancing infrastructure and coastal defenses, and long-term health care management. Whether such projects are evaluated as being economically justifiable depends on the social discount rate (SDR) that the government deploys. This variable converts the future costs and benefits of public policy into their value today, thereby facilitating the comparison of social investments with different maturities. Critically, the result of such analysis is extremely sensitive to small changes in the choice of the SDR, yet policy guidelines differ widely across countries and international institutions. In this article, we provide a review of the academic literature on long-term SDRs, with particular emphasis on how these insights have been integrated into governmental guidance.

Taking Aalborg as the basis for a case study, we consider the discount rates, annuity rates and costs of capital that were used in recent socio-economic and financial Net Present Value (NPV) analyses of a proposed geothermal district heating plant. While the core NPV analysis applied a real social discount rate of 4 percent, in keeping with Danish government guidance, emissions and electricity prices were based on costs of capital that differed from this rate, as did the annuity rate applied in the financial analysis of the project. While the different rates are carefully justified in each setting, we question whether there is consistency in the approach taken to intergenerational welfare across different steps of the analysis. The use of high corporate rates in some contexts potentially makes it more difficult for Green Transition projects to meet the legal requirement of being evaluated as socio-economically optimal.

A Correction to this paper has been published: https://doi.org/10.1038/s41558-021-01021-w.

The economic values of investing in long-term public projects are highly sensitive to the social discount rate (SDR). We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect, and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable. (JEL C83, D61, D82, H43, Q58)

This article aims to stimulate debate around publicly-expressed, opposed opinions, on climate change and to briefly explore the reasons that could drive these contrary views. The strong association between an individual’s concern about the threat of climate change, and whether they more generally lie on the right or left of the political spectrum, has been extensively evidenced in the academic literature; see, for example, McCright et al. (2016) and the references therein. Results from a Gallup poll in June 2017 indicated that this partisan divide between Republicans and Democrats in the USA is growing ever wider. Compared to a decade earlier, there has been a rise of over 10 percentage points in Democrats who worry a great deal about climate change (66% from 55%), while this percentage for Republicans has fallen by six percentage points from an already much lower base (18% from 24%). This helps explain the Trump administration’s position on the Paris Agreement. In the highly-heated exchanges in online forums, those on the political left often assign the unwillingness of ‘climate deniers’ to accept the urgency to act on reducing greenhouse gas emissions as evidence of narrow vested interests, stubbornness and general scientific stupidity. Similarly, those who make the strongest case for climate change action are disparaged as ‘watermelons’ (Delingpole, 2012)—green on the outside and red on the inside, where environmentalism is used as a stealth mechanism to action a socialist agenda via the back door. While there is no doubt some truth in both these sets of accusations for a minority of people, they do not strike me as being helpful for a meaningful discussion on how to move forward the policy agenda. As Sun Tzu noted in The Art of War, ‘If you know yourself but not the enemy, for every victory gained you will also suffer a defeat’. Ridiculing those who disagree with us cannot fully equate to understanding as, even among the expert community, Pindyck (2016) has documented large disagreements over how much should be spent to reduce carbon dioxide emissions. I therefore briefly propose a framework that combines moral foundation theory, rational learning, and differences in individual ethical preferences that I think will allow for improved discourse.

A natural reference comparison for our results is the seminal survey of Weitzman (2001), who asked more than 2000 Ph.D.-level economists to report a single appropriate “real discount rate” or “rate of interest” with which to discount projects aimed at mitigating climate change. The key difference between the response data of Weitzman (2001) and our results is that we find a substantially lower mean (median) SDR recommendation, with 2.27 percent (2 percent) compared to 3.96 percent (3 percent). Furthermore, we find a much lower standard deviation of the SDR responses of 1.62 percent compared to the 2.94 percent of Weitzman’s (2001) respondents, and the range of point recommendations on the SDR is much more condensed (0 to 10 percent compared to -3 percent to 27 percent).1 The modal recommended value for the SDR of 2 percent, however, is the same in both surveys. We can point to at least three potential explanations for these differences. First, experts who have graduated from their Ph.D.s since Weitzman’s survey was conducted generally recommend lower SDRs than those who have been in the profession for longer. Second, the literature that has influenced this new generation of academics — for example, on declining discount rates and the arguments articulated in the Stern Review — may have led more established scholars to reduce their SDR recommendations during their careers. Third, Weitzman’s pool of potential respondents is a general economics audience, while we select only those scholars who have published directly on discounting and can be considered specialists in this sense.

This poster highlights the work of the Society of Chief Librarians and Share the Vision in the UK in advocating for improvements in library services for people with sight loss. The Six Steps Promise is one of six Universal Offers and two Promises which have been developed by the Society of Chief Librarians and their partners. Six Steps has around 98% sign up from the public library services of England, Scotland, Wales and Northern Ireland and is a simple charter providing a consistent basic service for people who need alternative ways of reading due to blindness, partial sight or other visual disabilities. The promise is backed by online and face to face workshop training with an email and web based resource to provide solutions to challenges faced by frontline staff.

Climate science initially aspired to improve understanding of what the future would bring, and thereby produce appropriate public policies and effective international climate agreements. If that hope is dashed, as now seems probable, effective policies for adapting to climate change become critical. Climate science assumes new responsibilities by helping to foster more appropriate adaptation measures, which might include shifting modes or locales of production. This theoretical article focuses on two broader tools: consumption smoothing in response to the risk of future losses, and physical adaptation measures to reduce potential damages. It shows that informative signals on the effects of climate change facilitate better decisions on the use of each tool, thereby increasing social welfare.