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Climatic Change

, Volume 41, Issue 3–4, pp 351–362 | Cite as

Time Discounting and Optimal Emission Reduction: An Application of FUND

  • Richard S. J. Tol
Article

Abstract

Time preferences are a dominant influence in cost-benefit analyses of long-term issues such as climate change. FUND, a model for optimal emission control, is used to spell out this influence. Classic discounting at various rates is contrasted with Heal discounting where the discount factor depends logarithmically on the time distance (it does linearly in the classic case), and Rabl discounting where the discount rate is set to zero at a certain point in the future. The choice of the discount rate has a strong influence on total and short-term emission reduction. The effect of Rabl and Heal discounting is like lowering the classic discount rate. International cooperation has a larger effect on optimal emission reduction, however, than does the discount rate. Larger still is the influence of explicitly taking up long-term goals for atmospheric concentrations in the welfare function, using a modification of the Chichilnisky criterion.

Keywords

Discount Rate Emission Reduction Discount Factor International Cooperation Time Preference 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Richard S. J. Tol
    • 1
  1. 1.Institute for Environmental StudiesVrije UniversiteitAmsterdamThe Netherlands, E-mail

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