To be able to compare costs and benefits that arise in the future with those arising today, some form of discounting is often used, interest, in other words. This enables you to calculate future costs and benefits at today’s value.
Naturally, one important question then is what discounting rate should you choose. Do effects in the future have a greater or lesser value than those happening today? If you consider that future effects are less important, you choose a high positive interest rate, if you feel they are more important, you choose a negative interest rate.
In current socio-economic calculations, a rate of 3.5 – 4 percent is often chosen. This means that the value of future effects falls rapidly over time. In 2118, 100 kronor would be worth the equivalent of 1.60 kronor today. In a from the Swedish Scientific Council for Sustainable Development to the Swedish government, we write that a high discounting rate is incompatible with long-term sustainability if it leads to measures that are necessary for sustainable development being rejected because they do not compute as being profitable from a socio-economic perspective.
That socio-economic profitability and sustainable development can conflict with each other is an important insight. The question can then be what should take priority. As a public organisation (such as a university) you can fall back on the form of government (one of Sweden’s constitutional laws) that states that the public sector should promote sustainable development. We also write in the report from the Scientific Council that a rate that is low enough to be compatible with long-term sustainability ought to be chosen.
Tip of the week: about the role of universities in a climate change reset.