SPD Analysis on Discounting Avoided Emissions

9/10/10

o EPA’s Guidelines for Preparing Economic Analyses issued September 2000 provides 

two basic lines of reasoning for not discounting benefits:

o Discounting is a financial process relevant to money therefore physical 

benefits cannot be discounted; and

o Discounting physical units is ethically unacceptable because it cheapens the 

impact for later generations or future years.

o The Economic Guidelines provide examples of when it may be appropriate and not 

appropriate to consider discounting non-monetized effects

o Discounting non-monetized effects is appropriate when:

• “Quantitative information on the time streams of physical effects is 

available and these effects are measured in terms of human health 

consequences and ecosystem damages that are normally monetized. 

If so, then these non-monetized benefits ought to be discounted if 

monetized costs and benefits are discounted. Discounting nonmonetary effects in these cases is not inherently different from 

discounting these units after attaching a unit value in dollar terms. 

What is being conveyed is the notion that effects felt farther in the 

future are worth less in today’s terms than those that occurred earlier 

in time. Thus, if two policies have identical current costs and the same 

amount of benefits in the future except that one produces these 

benefits earlier in time, the policy that offers earlier benefits will have 

a higher social value.”

o Discounting non-monetized effects might not be appropriate when:

• An analysis stops far short of the physical effects that are good proxies 

for damages, the relationship between harms and emissions...might be 

poorly understood.

o “...the impacts of climate change may depend not only on the 

absolute levels of these effects, but on the rate at which they 

occur.”

o “...even when benefit estimates are based on linkages from 

emissions to other physical and biological endpoints, often 

these benefit measures are still not close enough to the 

endpoints of ultimate concern to allow discounting.”

• Discounting actually conceals information of value to policymakers –

if there is time element to contend with, or differences in ultimate 

environmental benefits.

• Analysts have an incomplete understanding of the relationship 

between emissions...and the actual harm to human health or the 

environment that result – discounting in these cases masks important 

information by implicitly assuming that a unit of benefits in one period 

has an identical effect on the ultimate benefit consequences of concern 

as a unit of the same benefit in another period. 
Discounting as it pertains to the Leak Repair Rule:

o Although the emissions are averaged over a ten year time period, discounting 

these emissions reductions would imply that the unit of benefits in a given year is 

equal to the unit of benefits in a later year. Because of the dynamic nature of 

ozone depletion and climate change and the cumulative effects of reducing 

emissions including additional health benefits, EPA would be masking the future 

benefits by even implying that these numbers should be discounted. 

Discounting as it pertains to the 2002 Nonroad Spark Iginition Rule RIA, the 2004 

Nonroad Diesel Rule RIA, 2007 Mobile Source Air Toxics Rule RIA, and the 2008 

Locomotive / Marine Diesel Rule RIA:

o It appears that discounting emissions likely was not consistent with EPA 

Economic Guidelines because in all cases, the emissions are not steady over time 

but discounting these emissions implies that there is no variation between 

emissions from year to year. 

o 2007 MSAT Rule - emissions are not directly discounted, instead, they 

display the discounted $/ton.

o 2002 Nonroad Spark Iginition Rule RIA, the 2004 Nonroad Diesel Rule 

RIA, and the 2008 Locomotive / Marine Diesel Rule RIA – emissions tons 

are directly discounted – however, as mentioned above, it is not 

appropriate. Another reason it is inappropriate to discount non-monetary 

benefits is based on the dynamic nature of emissions benefits and the 

unknown future impacts/benefits.