Environ. Res. Lett. https://doi.org/10.1088/1748-9326/ab3cc9 (2019)
The discount rate, a key parameter in climate-economic models used to translate potential future policy benefits into present-day costs, has long been a subject of debate among economists. Yet the impact of different discount rates on the timing of abatement and carbon budget overshoot in policy-relevant scenarios that feature prominently in recent IPCC reports remains underexplored.
Johannes Emmerling of RFF-CMCC European Institute on Economics and the Environment, Italy, and colleagues show that the choice of discount rate not only matters for mitigation costs but also affects the time when net-zero emissions are reached and the amount of negative emissions needed to meet global temperature targets. Using both an analytical model and a detailed process Integrated Assessment Model (IAM), they show that moving from a 5% to a 2% discount rate more equitably distributes mitigation efforts across generations, reduces carbon budget overshoot by half and reduces net negative emissions by 300 GtCO2 over the century. Although discount rates of around 5% are commonly adopted in IAMs, the rates applied by governments around the world range from 3% to 15%, suggesting that further attention to the issue of time discounting is needed to inform future global assessments.