RFF Scholars Awarded Prize for Economics of Climate Change

In their paper, the authors note that the rate at which the future impacts of climate change are discounted in benefit-cost analysis has a very large influence on the present value of mitigation efforts. The study asserts that acknowledging uncertainty about future interest rates leads to a higher valuation of the future benefits of reducing greenhouse gas emissions today — regardless of the initial rate one chooses. By ignoring this uncertainty, they conclude, current approaches used in economic modeling may consistently undervalue the future benefits of today’s climate change mitigation efforts. However, including the effect of interest rate uncertainty in climate models almost doubles the value of mitigation efforts relative to conventional discounting at a constant rate.

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