Final Report Summary - LONG-TERM RISKS (Evaluation and management of collective long-term risks)
However, it happens that fighting climate change generates benefits to future generations that are positively correlated with their level of economic development. This implies that mitigation does not hedge the global risk that future generations face. This justifies adding a positive risk premium to the risk free discount rate. I show that this risk premium must have an increasing term structure. My conclusion at this stage of this research is that expected climate benefits should be discounted at a rate somewhere between 4 and 5%. However, this result is quite sensitive to the calibration of fundamental uncertainties affecting the distant future, such as the frequency of global catastrophes, the long-term trend of growth, or the plausibility of the economic convergence and of the reduction of inequalities around the world.