Comment 2 on workshop in economics - issues in benefit-cost analysis: Amplification channels and discounting long-term environmental damages

Many environmental problems have long-term effects. Acid rain has long-term effects on soils, forests, and exposed materials. Global climate change has even longer-term effects. This difference in timing - between the near-term cost of environmental protection and the long-term environmental effects - makes it difficult to conduct a cost-benefit analysis of any program designed to abate environmental damages. The rate at which to discount long-term environmental damages becomes a key question in comparisons of benefits and costs. This comment points out an important facet of the discounting issue. The discount rate for calculating the present value of future environmental benefits may be much lower than the rate of return on investment. Cost-benefit analysis is a framework in which to evaluate policies and decisions. Because global climate change is a complex problem, extensions of cost-benefit theory can be expected to add additional insights, particularly in the following areas: distinguishing distributional effects among nations, over time, and among generations; determining the rate of discount that is appropriate for long-term environmental damages and separating risk aspects from the rate of discount; and assessing amplification effects when policies involve large expenditures relative to the economy or when affected sectors are significant sectors of the economy