The Role of Discount Rate and Social Cost of Carbon in Long Term Climate Policy on Renewable Electricity in Thailand

Abstract

In economic appraisal of project investment, two important factors that are significantly taken into account are the discount rate and the costs. Discount rate is used to determine the present value of future cash flows of the projects. For climate change projects, the lower discount rates are recommended since benefits will be obtained in the long term. In general, private and external costs are used to evaluate the project investment. Combination of both costs is called “social cost”. In this study, only the “social cost of carbon (SCC)”, referring to an estimate of the economic costs of one additional ton of carbon dioxide emitting into the atmosphere, is considered. The objective of this paper is to estimate the SCC in term of carbon tax on the subject of three discount rates with the objective of renewable electricity to achieve carbon neutrality by 2050. Firstly, a 6 percent discount is applied from the base year to 2037. Then, a discount of 3 percent is applied until 2050. The results show that renewable electricity can achieve the carbon neutrality target at SCC of higher than 2.0 USD/t-CO2 and 132.7 USD/t-CO2 for the periods 2020-2037and 2038–2050, respectively.