Intergeneration Equity – Considering Energy Again Tim Swanson

A Return to Global Warming Externalities

Costs of Doubling CO2

But ….why a doubling of CO2?

Truncating the Enquiry? Doubling of CO2 incurs costs of 1% gdp Doubling of CO2 set to occur in 40 years Nothing to do about that (due to the inertia from past emissions) Why does the analysis stop at doubling?

Costs depend on weights we apply to our concern about future gens Costs of One Unit of CO2 Emission in 2008 = Costs of Increased Stock of Carbon(2008) + Costs Increased Stock (2009) + Costs Increased Stock (2010) + ……… + Costs Increased Stock (2208)  Emission this year increase stock for 200

What is the aggregate cost of an emission this year ?

What weight does the current gen place on costs to future gens? Costs of One Unit of CO2 Emission in 2008 (valued today) = Costs of Increased Stock of Carbon(2008) + δ Costs of Increased Stock (2009) + (δ x δ) Costs of Increased Stock (2010) + ……… + δ200 Costs of Increased Stock (2208) Each δ represents the discount rate applied to shift the cost back one year “Discount Rate” - weight we give to costs we shift into the future

What is the impact of discounting future generations costs? 1% discount rate: Cost of £1m today is valued today: £1m Cost of £1m in 10 yr valued today: £900k Cost of £1m in 100 yr valued today: £366k Cost of £1m in 200 yr valued today: £136k Cost of £1m in 1000 yr valued today: 40p

Suggested UK discount rate (3.5%) Cost of £1m today valued today: £1m Cost of £1m 10 yrs valued today: £700k Cost of £1m 100 yrs valued today: £28k Cost of £1m 200 yrs valued today: £800 Cost of £1m 10k years valued today: < billionth of a penny

Why weight the same impact differently if it happens in future? Reason 1: Long Term Growth If we invest in a benefit for the future gens, it will accumulate interest at a rate that will be aggregate in same manner as the cost is discounted That is, invest 28k today and in 200 years it will accumulate to £1m (assuming same long term growth of economy is achieved in future as it has been in past)

Why weight future? Reason 2: Pure Impatience There are uncertainties about the future that mean that we don’t value receiving the same benefit next decade as we would this decade. That is, we discount for the risks and uncertainties (death, extinction) that might occur in-between

As we increase discount rate, we decrease weight we give to future.

End of Story?

Attempt by the Stern Review: Considered low discount rates

Inter-generational equity Current generation must choose the weight it gives to costs placed on future generation It is easy to discount costs in distant future (say, 50 years) and then use this as excuse to forget about the problems As with SD, this assumes that this generation invests in way to compensate for the future costs imposed on the future

What about substituting nuclear generation for fossil fuels? Major distinctions in costs are: Much larger capital costs of nuclear at outset; Much larger costs of decommissioning of nuclear at end of life; 200 year emission costs from fossil fuels; and Costs of HL waste disposal from nuclear.

Comparative costs – IEA est. Nuclear becomes competitive once CO2 costs are included in fossil fuel generation  UK push for nuclear as a means of inter-generational equity?

But what is happening to the other costs of nuclear? Decommissioning – Plant lives are extended to 60+ years in order to push decommissioning costs into the future HL Hazardous Wastes Costs?

Geological Disposal

Costs of Nuclear HL waste toxicity continues for 10,000 years Emission into groundwater highly toxic What weight is being placed on the possible costs of these toxic wastes escaping each year after one generation or so? ZERO

Costs taken into consideration – building the hole

Comparing Nuclear and Fossil Fuels as Sources of Energy Both types are mainly questions of inter-generational equity Fossil fuel burning creates an impact that is felt every year for two hundred years Nuclear creates HL wastes that have impacts every year for ten thousand years In both cases, the current generation can ignore the impacts that extend beyond its time horizon (about 50 years)

Conclusion Inter-generational equity may be conceived as the current generation’s responsibility for considering the impacts it is imposing on future generations This is the essence of “discounting” – what weight do we give the future? Discounting cannot be avoided – things do happen over time to make different years different.

Nuclear v Fossil Fuels? So it is critical to get the weight right for future impacts It is also critical that we invest now to help address the problems of tomorrow (SD) Finally, it is not good enough to consider some future impacts and not others – everything we do shapes the future paths of future generations