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Recalibrating the Discount Rate for the Social Cost of Greenhouse Gases

Over a decade has passed since the Interagency Working Group on the Social Cost of Greenhouse Gases (Working Group) selected its discount rates, thereby determining how much or how little weight would be given to the climate effects that will impact future generations.

In light of recent evidence, but also recognizing that the lowest discount rate that the Working Group previously used was 2.5%, a new range of discount rates appropriate for calculating the social cost of greenhouse gases could be conservatively estimated as between 0.5%-2.5%, with a central estimate of 1.5%. Agencies should follow the Working Group’s guidance on applying new social cost of greenhouse gas estimates based on updated discount rates—and will need to justify their choices, including any departures from prior practices. Moreover, agencies will either need to adopt consistent approaches to discounting across all climate and non-climate costs and benefits under analysis, or else will need to thoroughly justify any differences in the discount rates applied to different contexts. Developing a declining discount rate schedule would be one straightforward option to achieve a more consistent approach to discounting across all costs and benefits. But if the federal government remains hesitant to adopt a declining discount rate schedule, other approaches are possible, including if necessary by thoroughly explaining why special economic, legal, and ethical considerations require discounting climate effects at a lower rate than other costs and benefits.