I’m trying to estimate value of carbon sequestration using the provided SCC price tables. Since the discount rate is already built into the prices, do I need to enter the matching discount rate into the “discount rate” field in the main model? Or would this create double discounting?
For example, I want to use “Price_table_SCC3.csv” for the price table for the 3% discount rate. The values in this table are lower than the ones using the 0.5 or 2.5% discount rates, so it looks like discounting is already factored in. Would the discount rate I enter into the model be 3 or 0?
My gut says this would create double discounting but I’m not sure how the internal code handles it. I’ve always run it using the number corresponding to the price table, but it occurred to me this might be double discounting.
On a side note, there are new decadal SCC price estimates from the US EPA now that have updated numbers (much higher estimates than the included price tables). Are there any plans to incorporate these updates into the price tables that come with the InVEST data download?
Hello @MonMor, great to hear form you!
Your intuition is correct: if the discount rate is already included in your selected price table, then you would want to input a discount rate of
0 in the UI to avoid that double-discounting in the NPV calculations.
Thanks for mentioning the new SCC price estimates from the EPA! I will look into them and we’ll see about including them in the sample data.
This is not all that intuitive in the description in the user’s guide, but the short answer is you do have to enter the same discount rate in the discount rate field as is reflected in the sample data table name.
The estimated values in the table for future years are the discounted value of the future stream of damages from carbon released in that year, discounted over future periods starting from that year. When you are calculating present value back to a reference year, you are further discounting back to the reference year. For consistent estimates, the two discount rates need to be the same.
As the person that has been updating the sample carbon price table data, I don’t have any immediate plans to update it. We don’t typically try to keep up on our sample data with the latest data, as it’s just meant to provide a template for data entry. That said, if you do end up using the newer data and would feel comfortable sharing with us, we’d definitely consider bundling it with InVEST as sample data.
Hi Rob and James,
Thanks, this is helpful. We will make sure to include the discount rate in both locations. We are doing a simple linear interpolation of the EPA data to estimate SCC in years that the table doesn’t list. If that’s an acceptable method for NatCap, I will ask the group if they would like to share the price table.
Makes sense, keep us posted!
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