(For the calculation, you divide $100 by a figure that is one plus the rate — in these examples 1.03 for a 3 percent discount rate
and 1.07 for a 7 percent discount rate — for each of the 100 years, or to the 100th power.)
Under the executive order, President Trump appears to be putting us on a path toward valuing
climate damages at much less — possibly less than $5 per metric ton of carbon.
Investors who had put some portion of their investments in gold — as an insurance policy — reaped the benefits as gold outperformed the stock market by almost 70 percent at exactly the moment
that the job market was deteriorating and other investments were declining in value.
But if those risks are real, using a low discount rate to choose the degree of climate
mitigation today will be like having invested in gold before the Great Recession.
But if the risk is potentially disruptive, like a severe recession or worse, then markets
point to a lower discount rate, perhaps like gold’s annual average return or even lower.
The social cost of carbon, the estimated monetary damages caused by the release of an additional ton of carbon
dioxide into the atmosphere, is the linchpin for how the federal government values climate damages.
With a discount rate of 3 percent, these damages are worth $5.20 today — that is, we would be willing to pay up to $5.20 to avoid them.
