Weighing the Costs and Benefits of Climate Change to Our Children

Summary: Our efforts to put the brakes on climate change or adapt to a warming climate present a fundamental tradeoff between costs borne today and benefits that accrue to the children and grandchildren of the current generation. In making investments today that affect future generations’ prospects, we need to think carefully about how we value their welfare compared to our own. A common economic formula recommends giving up only 5 cents today for every dollar of benefits 100 years in the future; we call this discounting the future. Underlying this approach is the assumption that future generations will be much better off than our own, just as we are much wealthier than our ancestors were. Would our descendants’ agree with this approach? Are there reasons to put more value on future benefits? William Pizer, Ben Groom, and Simon Dietz discuss three possible reasons that we might put a higher value on future benefits. First, people disagree considerably about the correct discount rate. Other plausible interpretations of society’s preferences or observed data could increase the weight we place on future benefits by as much as a factor of five. Second, we may have failed to correctly value future climate change impacts, particularly those related to the loss of environmental amenities that have no close monetary substitutes. Third, we may not be properly valuing the risk that a warming climate could cause sudden and catastrophic changes that would drastically alter the size of the population. Ultimately, the authors write, many of the choices about how we value future generations’ welfare come down to ethical questions, and many of the decisions we must make come down to societal preferences—all of which will be difficult to extract from data or theory.