Climate policies deserve a negative discount rate

This paper was written for the workshop on “Climate Change Justice”, Chicago, May 2012.
The authors have benefited from comments by G. Asheim, D. Weisbach (who in particular encouraged us to examine risky returns to investment), and the participants at the workshop on "Climate Change Justice").

We defend a methodology of discounting, for the evaluation of the long-term effects of climate policies, which relies on a social welfare objective, against the view that the market rate of return should be used for that purpose. We also show that in the long run, the discount rate for such policies should focus on the worst-case scenario for the most disadvantaged populations. As a consequence, it is likely that the appropriate discount rate for climate policies should be negative, implying a high priority for the future.