Climate policies deserve a negative discount rate

Introduction Since the Stern Review (Stern 2007) and the debate it has sparked off, the discount rate has been at the center of heated discussions about climate policies. In the very long run, the discount rate makes a huge difference in the evaluation of policies. The following table (Table 1) shows the minimum return that a $1 investment for the future should have to be considered better than consuming it now, depending on the discount rate that is adopted and depending on the horizon. The 1.4% discount rate is advocated by the Stern Review, but later Stern suggested that 2.7% might be a better figure. The table shows that this hesitation is not innocuous. Obviously, adopting a much higher discount rate as recommended by Nordhaus (around 5.5%) has even more extreme consequences.