The social discount rate on climate change

Abstract

Purpose -The aim of this paper is to evaluate the impact of social discount rates on the economic significance of CO 2 mitigation in the benefit-cost analysis of recent amendments of Building Regulations Part L. Design/methodology/approach -The benefit of mitigating CO 2 emission by raising the standard of building in amended building regulations is estimated by an integrated-assessment economic model called DICE at different social discount rates proposed by economists and government. Findings -The benefit of CO 2 mitigation is highly sensitive to the choice of social discount rate that the value of social discount rate is a crucial factor to decide the economic viability of recent and future amendments of Building Regulations Part L. The more positive the social discount rate used in the benefit-cost analysis, the less sustainability appears to be because higher discount rate tips the balance in favour of current benefits against future costs. Research limitations/implications -This paper focuses on the impact of social discount rates on the shadow price of CO 2 emission. Further researches are needed to estimate the private benefits and costs to construct and operate buildings complying with amended Building Regulations Part L so as to produce a solid benefit-cost analysis on the amendment of the building regulations. Practical implications -If sustainable development, similar to other traditional investment, is subject to feasibility judgement in a common metric, more attentions are needed to be given by sustainability literature on the issue of discounting. Originality/value -This paper for the first time evaluates the environmental benefits of amending the Building Regulations and the sensitivity of the benefits to the choice of social discount rates.