Abstract: In September 2011, the US Environmental Protection Agency asked 12 economists how the benefits and costs of regulations should be discounted for projects that affect future generations. This paper summarizes the views of the panel on three topics: the use of the Ramsey formula as an organizing principle for determining discount rates over long horizons, whether the discount rate should decline over time, and how intra- and intergenerational discounting practices can be made compatible.The panel members agree that the Ramsey formula provides a useful framework for thinking about intergenerational discounting. We also agree that theory provides compelling arguments for a declining certainty-equivalent discount rate. In the Ramsey formula, uncertainty about the future rate of growth in per capita consumption can lead to a declining consumption rate of discount, assuming that shocks to consumption are positively correlated. This uncertainty in future consumption growth rates may be estimated econometrically based on historic observations, or it can be derived from subjective uncertainty about the mean rate of growth in mean consumption or its volatility. Determining the remaining parameters of the Ramsey formula is, however, challenging.

Abstract: The U.S. Environmental Protection Agency’s (EPA) proposed greenhouse gas (GHG) performance standards for power plants are an important step forward in regulating GHGs in terms of both their substantive impact and legal precedent. Nevertheless, we have some concerns with the proposal, which we discuss in the following comments submitted to the agency. The majority of our comments are directed to ways that EPA can increase certainty for the industry—reducing costs and, possibly, improving environmental outcomes. We highlight two specific areas of concern. First, the current proposal contributes to the significant uncertainty facing existing sources. Second, EPA’s proposed averaging option for new facilities that will install carbon capture-and-storage (CCS) technology in the future, although intended to create a flexible pathway, unfortunately creates some new regulatory uncertainty. We also comment on EPA’s decision to combine most coal and gas generators into a single source category. We believe this decision is legally valid and practically important, and that EPA should resist pressure to reconsider.