While some of the costs of climate change won’t be incurred for centuries, the actions to mitigate them need to be taken today. Over such a long timespan, small changes in discount rates can drastically change the attractiveness of such investments. This column presents estimates of appropriate discount rates for very long time horizons. The long-run discount rate for one important risky asset class – real estate – is estimated at 2.6%. This provides an upper bound on long-run discount rates for climate change abatement, one that is substantially lower than some of the rates currently being employed.
Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Andreas Weber, 23 January 2016
Toby Nangle, 09 May 2015
The recent remarkably low interest rates have puzzled economists. The standard explanation rests on the extraordinary manoeuvres of the world’s largest central banks. This column argues, however, that it is due to economic developments, specifically globalisation and the collapse in labour power in the west.
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