Environmental Economics
Why Economists Think a Child's Life Is Worth Less Than Yours
Built into every serious climate model is a quiet assumption that future lives matter less than present ones — and the number chosen to express this has more influence over climate policy than almost any scientific finding.
The Idea
Economists call it the discount rate: the mathematical tool used to compare the value of something today against the value of something in the future. In personal finance, discounting is intuitive — you'd rather have a sum of money now than the same sum in a decade, because you can invest it, spend it, or at least enjoy the certainty of having it. A standard discount rate might run at a few percent annually, quietly compounding away the future's importance. Apply that logic to climate change, though, and something uncomfortable happens. If you discount future costs at even 5% per year, damage that occurs in a century becomes almost negligible in today's terms — not because the damage is small, but because the mathematics makes distant suffering vanish. A catastrophic flood that devastates a coastal city in 2120 gets priced, in present-value terms, at a fraction of a mildly inconvenient disruption today. This is not a fringe concern. It sits at the centre of every major cost-benefit analysis used to justify — or resist — climate action. The UK government's 2006 Stern Review used a near-zero discount rate and concluded urgent, expensive action was clearly warranted. The Yale economist William Nordhaus used a higher rate and concluded a slower, cheaper response made more sense. Same physical reality. Same data. Radically different prescriptions — all because of a single number most people have never heard of.
In the World
In 2006, Nicholas Stern, former chief economist of the World Bank, published a 700-page report commissioned by the UK Treasury. His central finding was stark: climate inaction could cost the equivalent of losing 5–20% of global economic output permanently, while acting now would cost around 1% of output annually. The report caused a sensation and briefly reshaped international climate negotiations. But Nordhaus, who would go on to win the Nobel Prize in Economics in 2018, was withering in his critique — not of the science, but of Stern's discount rate. Stern had used a rate close to 0.1%, rooted in an ethical argument: future people are just as real as present people, so their suffering should not be mathematically discounted simply because they haven't been born yet. Nordhaus preferred a rate derived from observed market behaviour — how people actually trade off present and future value — which came out closer to 6%. At that rate, Stern's alarming figures shrank dramatically, and the urgency dissolved. The exchange became one of the most consequential debates in modern economics. It revealed that buried inside every climate cost-benefit model is not just science, but a philosophical choice about whose suffering counts — and by how much. Governments that want to justify delay reach for higher discount rates. Those that want to justify action reach for lower ones. The maths does the rest.
Why It Matters
Most of us carry around an informal version of discounting every day. We put off pension contributions because retirement feels abstract. We choose the cheap fix over the durable one. We act as though the future is a foreign country we don't quite believe we'll visit. Understanding discounting doesn't just clarify climate economics — it illuminates why collective action on long-horizon problems is so hard. Democratic governments face elections every few years; markets reward quarterly earnings; our own minds are wired to weight immediate rewards heavily. The discount rate is, in a sense, a formalisation of human impatience. But knowing this gives you a sharper lens. When you hear that a climate policy is "too expensive" or "not cost-effective," you can now ask: at what discount rate? Who decided that future lives are worth that fraction of present ones, and on what grounds? These aren't technical questions to be outsourced to economists — they are moral questions dressed in the language of finance, and they deserve exactly that scrutiny.
A Question to Ponder
If you genuinely believed that a person born in 2090 mattered as much as a person alive today, what would you do differently — and what would you expect your government to do differently?
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