Carbon Sequestration Model - Market Discount + Annual Rate of Change

Science & Research
#1

Hello InVEST community,

I am working with the carbon storage and sequestration model. I have a question regarding the market discount in price and the annual rate of change in the price of carbon.

The research of Ricke et al. (2018) separated two types of market discount rates: (i) fixed and (ii) growth-adjusted.

Growth-adjusted rate is calculated as followed (not relevant, but this is based on Ramsey 1928)
Pure rate of time preference (2 %) + Elasticity of marginal utility (1.5) × Country average growth rate

My question is, is the “annual rate of change” in InVEST the same as the “pure rate of time preference” described in Ricke et al. (2018)?

Thank you and regards, Andreas

#2

Hi Andreas,
Cool paper, thanks for sharing. The annual rate of change is simply the inflation rate of the price of carbon credits (or alternatively the cost of carbon). The model as currently constructed only accepts a fixed discount rate, based on the latest guidance from the US Interagency Working Group on the Social Cost of Carbon. This paper suggests results may be different using growth-adjusted rates, so the choice matters. If you are handy with python, you could modify the source code directly to accommodate a time-varying discount rate, but otherwise this is not currently a feature. We will consider it for the future though.
Regards,
Rob

3 Likes
#3

@rmgriffin Thank you very much for your support!