Skip to main content
Article thumbnail
Location of Repository

Global warming: discounting is not the issue, but substitutability is

By Eric Neumayer

Abstract

The cost–benefit study of Nordhaus (1994) is representative for the neoclassical approach towards global warming. Nordhaus found that no substantial emission cuts are warranted. Most of his critics have concentrated on the issue of discounting and demanded that a lower discount rate should be applied. These criticisms first miss the point and second lead to ethically dubious, inconsistent conclusions and inefficient policy choices. They miss the point because the real problem of Nordhaus’s methodology is his implicit underlying assumption of perfect substitutability between natural and other forms of capital. Given the validity of this assumption, lowering the rate of discount is inconsistent with current savings behaviour, is ethically dubious because future generations will be much richer than the current one anyway, and is inefficient because scarce financial resources are channelled into emissions abatement that exhibits rates of return far inferior to alternative public investments. Any call for aggressive emission abatement must therefore directly attack the perfect substitutability assumption of neoclassical economics. The real disagreement is about whether consumption growth can compensate for environmental degradation caused by global warming. Discounting is not the issue, but substitutability is

Topics: GE Environmental Sciences, QC Physics
Publisher: Elsevier
Year: 1999
DOI identifier: 10.1016/S0301-4215(98)00063-9
OAI identifier: oai:eprints.lse.ac.uk:30766
Provided by: LSE Research Online

Suggested articles

Citations

  1. (1997). 2500 Economists Agree on Risks to Global Climate Change.
  2. (1997). 3 If uncertainty is also taken into account, then „the optimal policy (...) tends to raise control rates because of the asymmetry in the net damage function“ (Nordhaus and Popp
  3. (1989). 4 The distinction between weak and strong sustainability should be credited to Pearce, Markanya and Barbier
  4. (1994). 6 On page 10 of his book Nordhaus
  5. (1928). A Mathematical Theory of Saving. doi
  6. (1995). A Social Discount Rate for the United Kingdom. Working Paper GEC 95-01. Centre for Social and Economic Research on the Global Environment,
  7. (1972). A Theory of Justice. doi
  8. (1993). An almost practical step toward sustainability. doi
  9. (1972). An Optimality Criterion for Decision-Making Under Ignorance. doi
  10. (1996). Beyond Growth. doi
  11. (1989). Blueprint for a Green Economy. doi
  12. Climate Change 1995: The Science of Climate Change— Contribution of Working Group I to the Second Assessment Report of the Intergovernmental Panel on Climate Change, doi
  13. (1996). Climate Change and Overlapping Generations. doi
  14. (1996). Climate Change Costs — Recent Advancements in the Economic Assessment. doi
  15. (1994). Communication - The Damage Costs of Climate Change: a Note on Tangibles and Intangibles, applied to DICE. doi
  16. (1993). Contingent Valuation: A Critical Assessment. doi
  17. (1992). Counting the Cost of Global Warming. doi
  18. (1991). Development, The Environment, and the Social Rate of Discount. doi
  19. (1996). Discounting and Distributional Considerations in the Context of Global Warming. doi
  20. (1995). Discounting in Integrated Assessments of Climate Change. doi
  21. (1996). Discounting of Long-Term Costs: What would Future Generations Prefer us to Do? doi
  22. (1991). Economic Approaches to Greenhouse Warming. doi
  23. (1991). Economic Responses to Global Warming: Prospects for Cooperative Approaches.
  24. (1993). Economic Values and the Natural World. doi
  25. (1995). Efficiency, Sustainability and Global Warming. doi
  26. (1997). Environmental Protection Agency doi
  27. (1996). Ethical Beliefs and Behaviour in Contingent Valuation Surveys. doi
  28. (1989). For the Common Good. doi
  29. (1993). Global Warming Economics: Issues and State of the Art. Working Paper GEC 93-28. Centre for Social and Economic Research on the Global Environment,
  30. (1977). Intergenerational Equity and the Investing of Rents from Exhaustible Resources. doi
  31. (1995). Intergenerational Equity, Discounting, and the Role of Cost-Benefit Analysis in Evaluating Global Climate Policy. doi
  32. (1995). IPCC Second Assessment: Climate Change doi
  33. (1991). Liberty and Justice: Essays in Political Theory 2. doi
  34. (1994). Managing the Global Commons: The Economics of Climate Change.
  35. (1991). Measuring the Existence Value of Wildlife: What do CVM Estimates Really Show?. doi
  36. (1992). Natural Capital and Sustainable Development. doi
  37. (1990). Natural Resources, National Accounting and Economic Depreciation. doi
  38. (1998). Preserving natural capital in a world of uncertainty and scarce financial resources. doi
  39. (1974). Resources for the Future, doi
  40. (1993). Sustainability: An Economist’s Perspective.
  41. (1982). The Choice of Discount Rates for Social BenefitCost Analysis.
  42. (1994). The Economic Costs of Global Warming Damage: A Survey. doi
  43. (1992). The Economics of Global Warming. Institute for International Economics, doi
  44. (1975). The Economics of Natural Environments. Resources for the Future, doi
  45. (1932). The Economics of Welfare. doi
  46. (1995). The Greenhouse Debate: Economic Efficiency, Burden Sharing and Hedging Strategies. doi
  47. (1991). The Greenhouse Effect: Damages, Costs and Abatement. doi
  48. (1996). The Secondary Benefits of CO2 Abatement: How much Emission Reduction do They Justify?, doi
  49. (1991). To Slow or not to Slow: The Economics of the Greenhouse Effect. doi
  50. (1999). Weak versus Strong Sustainability: Exploring the Limits of Two Opposing Paradigms. Cheltenham and Northampton: doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.