Climate Change Costs Rise as Interest Rates Fall

Bauer, Michael D.; Rudebusch, Glenn D.

Journal Article

Climate Change Costs Rise as Interest Rates Fall

Abstract: Climate change—including higher temperatures and more extreme weather—is already causing economic damage and is projected to have further long-lasting effects. To properly assess the potential future economic losses from climate change, they must be discounted to produce comparable values in today’s dollars. The discount rates required for this assessment are influenced by the long-run equilibrium real interest rate, which has declined notably since the 1990s. Accounting for a persistently lower real rate increases the present discounted future costs of climate change, which is relevant for climate policy choices.

Keywords: climate change; interest rates; discount rates; climate policy;