A Slow-Discounting Model for Energy Conservation

Abstract

Public benefits in the distant future receive very little importance when a policy analysis uses constant discounting to weigh future benefits against present costs. This undervaluing of future events occurs because a constant discount rate assigns to the events a geometrically decreasing sequence of weights. An alternative method of discounting allows the weights to decrease more slowly and thus accords greater importance to the distant future. This slow discounting method is used to evaluate for the US Department of Energy a proposed standard for energy conservation in residential housing. The analysis also includes nonzero estimates of the indirect costs of energy usage.