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Benefits from addressing climate change are negatively correlated (if effective) with wealth, at least in these part of the world most affected by climate change, and possibly with the world aggregate wealth. The risk premium may be negative.

It is very hard to figure the proper discount rate in a world where we don't understand the observed risk premium. However, I conjecture that some of the current explanations for the equity premium based on financial frictions, credit constraint and other market incompleteness would increase the price of risk and magnify the premium.

At the very least, a 3% discount rate is a conservative choice from the author's viewpoint, I'd say.

If you follow the stentorian objections of people like R.Tol, the bemused ivoroy tower stuff of Nordhaus, or note who tends to follow whom, it soon begins to seem that the quarrel here is ideological. One Australian economist said that if you really do not give a shit about the future you will hit them on the head with your discount, so if you do care you will head toward zero on this item. But with the two new reports we have recently, one being the Stern review noted here, and the other being the 4th Report (or a pre report summary) of the IPCC on the environmental science side, it is not at all a matter of the distant future. You do not lhave to worry about your grandchildren because you are or soon will be thoroughly concerned about your own rear end. When the climate starts to bite we call it weather, and sensible people get out of the rain.

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