1. Care for future generations: the impact of climate change
Donald Hay
Emeritus, Jesus College and Department of Economics, Oxford
18 March 2017

3. The issues Science of global warming – the IPCC reports
Climate change projections for the 21st Century
What do we mean by discounting?
How much should we discount the future?
Alternative approaches
The contribution of Christian moral reasoning

4. The Science of Climate Change
The IPCC Fifth Report:
Published in 2014 (first report in 1990): increasing confidence in analysis and projections
Evidence for global warming – air and ocean temperatures, melting of ice, rising sea level
Concentrations of greenhouse gases - carbon dioxide, methane and nitrous oxide – marked increase in last 50 years

5. Berkeley Earth Surface Temperatures

6. IPCC findings
‘Anthropogenic greenhouse gas emissions have increased since the pre-industrial era, driven largely by economic and population growth, and are now higher than ever. This has led to atmospheric concentrations of carbon dioxide, methane and nitrous oxide that are unprecedented in at least the last years. Their effects … have been detected throughout the climate system, and are extremely likely to have been the dominant cause of the observed warming since the mid 20th century.’

7. Climate change projections for the 21C
Current level of CO2e concentrations in atmosphere about 430 ppm (pre Industrial Revolution about 280 ppm) – due to burning fossil fuels (currently 78% of emissions), and agriculture and deforestation.
Growth of concentrations 2.2% per annum. ‘Business as usual’ will lead to 550 ppm by 2035.
2004 – 2030 : 75% of growth from developing countries: but developed economies responsible for 70% of current concentration levels.
IPCC projections (not predictions!): in absence of mitigation, expected rise in temperature between 3.7 and 4.8 degrees C by end of the century, with small chance of much greater warming

8. Discounting the future: what does it mean?
Investing £100 at 5% gives £105 in a years time
A receipt [or cost] of £100 in a year’s time is worth £95.25 now, if the interest rate is 5%. Present values.
Over many years, the discounting is compounded.

9. Discounting: interest rates and present values of £1
25 years hence
50 years hence
100 years hence
0.0
1.00
0.5
0.88
0.78
0.61
1.0
0.37
3.0
0.48
0.23
0.05
6.0
0.003

10. Implications of discounting
Consumers’ attitudes to future consumption: firms’ attitudes to investment. Myopic behaviour?
Climate change: identified cost of £1million in 50 years time: present value at 0.5% is £780k, but only £230k at 3.0%: so investment of £230k to prevent cost only worth it if interest rate is a bit less than 3.0%
Cost of carbon: build up of greenhouse gases over the long term: current cost much higher if discount rate is low, so carbon tax should be higher.

11. What value for the discount rate?
Economists disagree – what’s new about that!
Stern Review: 2.2% for the current century, and 1.4% long term
Nordhaus: 6% is more appropriate
Why the disagreement?

12. How much should we discount the future?
The ‘pure rate of time discount’: (a) ‘impatience’; (b) non zero risk of destruction of the earth [hazard rate]
Future generations getting wealthier – so discount rate depends on: (a) growth in incomes; and (b) the weight to be given to higher incomes accruing to our descendants

13. Why not use market rates?
Reflects the actual preferences of current consumers. But future generations lack a voice in current capital markets, and their interests need to be protected
What is the ‘market rate’?

14. Alternative approaches
Insuring the future: investment to avoid extreme outcomes.
Choosing what not to discount: commodities OK, but not the environment
Preserving human rights in the future including right not to suffer dangerous climate change. Is the appropriate discount rate for rights zero?

15. The contribution of Christian moral reasoning
Theocentric versus anthropocentric approaches to environmental issues
Taking the side of Stern against Nordhaus: reasons for supporting low discount rates
Collective insurance is compatible with ‘stewardship’ role for humanity
Caring about the rights of future generations