April 29, 2021
Mister Nordhaus won the 2018 Nobel Prize in Economics for his work on the economics of climate change. This video is his "prize lecture" and one I think we can all benefit from watching.
As I read about Mister Nordhaus and his conclusions about the cost-benefit of the timing of abatement steps we should take, I came across an old friend of mine -- the discount rate -- how much is a dollar in the future worth today. Critics of Mister Nordhaus argue he uses too high a discount rate -- meaning that a future dollar is worth less today than it would be if he used a lower discount rate. That is an important variable in analyzing the cost-benefit of future actions and one I had not thought about regarding climate change.
Note that Mister Nordaus argues than the energy markets have failed, in that most of them have not placed a price on carbon. This leads to misallocation of resources and inefficient market signals.