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2014-09-30 | video

Environmental Policy Lecture 8 part 2

Policy Instruments Lecture 8 part 2

In lecture 8 Professor Sterner speaks about discounting, an exiting topic as he calls the discount rate as being the value of the future. In spite of all uncertainties there are about impacts of Climate Change the biggest uncertainty considering its future costs comes from the discount rate. 

In part 2

So the main argument for discounting could also be derived from the assumption that rich people suffer less from paying than poor people. Assuming also that future generations will be richer it becomes reasonable that they won´t suffer much from paying extra. At the same time, such assumptions indicate that one would care a lot about the poor, but at the same time Climate Change is likely to strike hardest on the poor, as for example large areas of Bangladesh gets flooded and some 50 million people or maybe more might have to leave their homes and even though the poor are assumed to also become less poor, this is uncertain and there are few indications of that the gap between the poor and the rich will decrease. Sterner shows how he, together with Christian Azar, in an article has used Nordhaus model and most of his assumptions only modifying three things, one being dividing the world up into rich and poor people. The main thing however, since Nordhaus basically assumes forever continuous growth, was adding an assumption of that after the world has gotten 10 times bigger it would stop growing. By doing so the results became completely different. 

In part 1 Sterner spoke about relative prices. What will happen with the relative price of environment as for example ecosystems become scarce? Coral reefs for example?