Discounting in the context of climate change economics: the policy implications of uncertainty and global asymmetries

Abstract

This article considers the debate on discounting in the context of climate change economics. It identifies and reviews three different frameworks: discounting under certainty in a single world composed of homogeneous individuals and goods, discounting under uncertainty in a single world, and discounting in an asymmetric world which considers differences in income distribution and preferences across people and heterogeneity among goods. The article links these conceptual frameworks with policy debates. It concludes that structural uncertainty and the importance of recognizing global asymmetries reveal the limitations of standard intertemporal welfare optimization frameworks to assess climate change policies. While the issue of uncertainty has received wide attention in the literature and policy debates, global asymmetries have been somewhat neglected.