Social discount rate (SDR) is the discount rate used to compute the value of investments on social projects. The discount rate in a discounted cash flow analysis is the interest rate used to put a present value on cash flows that will occur, in the face of significant uncertainty, over a future period of time. Discount rates are typically set to the opportunity cost of capital, i.e. the return of the best alternative available to those investing in the project. But how do you estimate this value for a social project like climate change mitigation?

Expert advice plays a key role in complex areas of public policy, and in particular in setting those SDR. However academic guidance in fixing SDR is sought predominantly from one discipline, economics, although economists do not have any special insights into the underlying ethical issues at stake in some of those complex problems. For example, when estimating the welfare cost of future climate damages and/or investments to mitigate them, the SDR is critical. Embedding this decision within an intergenerational welfare setting would require many competencies, so deliberative and multidisciplinary perspectives are key.

In a paper published in nature climate change last may, researchers report the views of philosophers, who are most trained in ethical matters. Interestingly they find considerable agreement between philosophers and economists for a long-term real SDR of 2%, although philosophers¡ motives are complementary to those of economists and they recommend alternative approaches to current climate policy analysis.

The estimated value to society from climate change mitigation is highly sensitive to the long-term social discount rate (SDR). While it is not clear that they possess any special expertise on intergenerational ethics, governmental discounting guidance has almost exclusively been influenced by economists. By contrast, we report the views of philosophers, who are most trained in ethical matters. We show that, as a group, these experts offer strong support for a real SDR of 2%; a value that is also predominantly backed by economists. We find multidisciplinary support for climate policy paths in line with the UN climate targets when views on discounting determinants are applied within a recent update of the Dynamic Integrated Climate-Economy (DICE) Model. However, this apparent agreement hides important differences in views on how the ethics of intergenerational welfare can be better incorporated into climate policy evaluation.

Nesje, F., Drupp, M.A., Freeman, M.C. et al. Philosophers and economists agree on climate policy paths but for different reasons. Nat. Clim. Chang. 13, 515–522 (2023). https://doi.org/10.1038/s41558-023-01681-w

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