Abstract
Energy-related investments gain increasing attention nowadays, particularly in Poland due to clean-energy investment needed to limit greenhouse gas emissions (GHG) and counteract climate change. However, economic appraisal is problematic: the longevity of impacts inextricably involves intergenerational ethical considerations. A crucial parameter is the choice of a discount rate. The predominant approach to estimate the discount rate in EU countries is the Ramsey rule, based on macroeconomic data, but not referring directly to society’s preferences. Those are considered by studies using surveys to elicit individual discount rates (IDR), but rarely concentrating on intergenerational time frame. The paper aims at delivering an insight into the intergenerational intertemporal preferences for Poland (households, n = 471) focusing on whether respondents are willing to declare zero discount rate intergenerationally and whether their choices differ between the short- and long-term perspectives and between human lives and money. To elicit IDR, two hypothetical investment scenarios were designed: lifesaving programs and lottery gains with delays from 10 to 150 years accompanied by attitude and socioeconomic questions. The results indicate that IDR follows hyperbolic time-decline, and a considerable share of respondents (around 20%) are willing to treat future generations as equally important in the case of human lives, while this proportion for monetary gains is two times lower. The IDR drivers differ between lives and money in respect of socioeconomic profile and attitude characteristics as well as between intragenerational and intergenerational time frames. The findings support (a) the rationale for distinct treatment of intergenerational allocations, (b) the divergence of preferences between public and private impacts, and (c) the switch from single to declining discount rate regime in Poland.
Highlights
Economic appraisal of energy-related policies and investments is a difficult task due to several reasons, including the substantiality of initial outlays for infrastructure, various externalities, and, last but not least, the longevity of the impacts
The question of whether future generations can be given an equal stance with people living at present is of great importance for energy-related investments
The paper aimed at shedding some light on this issue and the results support more equal treatment of future generations than what emerges from current economic appraisal practice
Summary
Economic appraisal of energy-related policies and investments is a difficult task due to several reasons, including the substantiality of initial outlays for infrastructure, various externalities, and, last but not least, the longevity of the impacts. The investment benefits or costs that emerge far in the future, when discounted at the rate of 5%, turn insignificant in the evaluation when compared with short-term impacts (1 million of benefit received after 30 years diminishes to 23%; after 50 years, it shrinks to approximately 9%; after 100 years, it is less than 1% of the initial value). The choice of a discount rate can be decisive for the evaluation outcome for energy policies and investments due to the fact that a considerable share of their impact reaches far in time. This is of particular importance when public funds are invested. Since the funds are limited, the appropriate discount rate ensures that the outlays will be dedicated to the best available energy investment option allowing for the maximum well-being increase
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