Tuesday, February 3, 2009

Discounting and LCA

Hellwig et. al. wrote a really interesting paper in 2003 entitled Discounting the Environment: Should Current Impacts be Weighted Differently Than Impacts Harming Future Generation?. Here is the objective of the paper:

Objective. In this paper, discounting is defined as valuing damages differently at different points of time using a positive or negative discount rate. Apart from temporal cut-offs, discounting has rarely been applied in LCA so far. It is the goal of this paper to discuss the concept of discounting and its applicability in the context of LCA.
It's an interesting idea because it seems obvious that impacts at different times are different. My willingness-to-pay for some environmental damage is different if that damage happens today or a year from now or 100 years from now. Using willingness-to-pay does imply some level of monetization, but the points still stands, that pollution today is not the same as pollution tomorrow. It may be better or worse, but it's not the same.

After looking at discounting from an economic and environmental standpoint, and applying it to a case study, the researchers conclude that:

It is concluded that discounting across generations because of pure time preference contradicts fundamental ethical values and should therefore not be applied in LCA
Discounting because of the productivity of capital assumes a relationship between monetary values and environmental impact. If such a relationship is accepted, discounting could be applied.
Uncertainties could justify both positive and negative discount rates.
Essentially, they decide that saying it's better for environmental impacts to happen in the future is unethical, and that we must treat future generations equitably. They do allow for the possibility of monetization of impacts that could lead to an appropriate discount rate. But, there is no good way to determine what discount rate should be applied. One would reasonably think that some impacts would be positive, others negative, and some zero depending on carrying capacity and scarcity issues.

This apparently leaves us with aggregation as the only reasonable solution, but that isn't really supported by the evidence either. I recommend tracking emissions and impacts based on their timing to enhance decision making. Ideally we could develop LCA's with annual emissions and impacts from the present to the end of the time horizon. That probably is not possible now, but should be pursued when/if possible. For the time being, it might be better to separate emissions and impacts by short term (0-2 years), intermediate term (3-10 years) and long term (10+ years). This information could be quite valuable for decision makers depending on the impacts being discussed.

We may be quite happy to delay some GHG emissions for 10 years. It gives us 10 years to develop mitigation and adaptation strategies. The same may be true of ozone depletion, or we may just want to spread the impact out as much as possible. Further consideration would be needed to really get a handle on what is appropriate. I am somewhat disappointed that more work has not been done in this area.

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