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Economic appraisal of carbon emitting projects and global warming
AuthorKula, Erhun İbrahim
MetadataShow full item record
CitationKula, E. (2019). Economic appraisal of carbon emitting projects and global warming. Interdisciplinary Journal of Economics and Business Law, 8(1), pp. 1-13.
This article focusses on how carbon emissions from various sources which contribute to the climate change are evaluated in economics. It has been argued by some economists that in cost-benefit analysis empirically based discount rates are too high wiping out distant environmental costs of many projects to the detriment of the environment. To this effect the British Government recommended %3.5 declining discount rate over time in the economic appraisal of projects and in this way, it has been claimed, future generations would not suffer from environmental externalities. Likewise Stern Review on climate change, published in 2006 which generated a good deal of controversy, also suggested the use of a low, but not declining, discount rate especially for projects with serious environmental consequences such as global warming. In this way the distant consequences of carbon emitting projects will have bearing in the current decision making process. This paper shows that neither Stern’s low discount rate nor the British Government’s declining figure will achieve their stated objectives because both like traditional models wipe out the environmental costs that will occur in the distant future. The paper instead recommends the use of intergenerational discounting criterion that places a substantial weight on future costs of all projects which are creating environmental externalities.