The Discount Rate for Assessing Intragenerational Natural Resource Damages

For more than 20 years, economists have converted annual losses from injuries to natural resources caused by oil spills or hazardous-substance releases into their present-value equivalents using a 3% real discount rate. A 1999 technical paper from the National Oceanic and Atmospheric Administration provided three data series from 1981 through 1998 supporting a 3% real discount rate. However, data series for 1981 through 2016, which provide a proxy for the social rate of time preference for consumption by the public, support a lower discount rate. Furthermore, recent conceptual developments imply a lower discount rate for environmental services than for produced goods and services. We present several lines of evidence that support a real discount rate of not more than 2% for assessing intragenerational natural resource damages.