Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland

Monika Foltyn-Zarychta, Rafał Buła and Krystian Pera
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Monika Foltyn-Zarychta: Department of Investment, College of Finance, University of Economics in Katowice, 40-287 Katowice, Poland
Rafał Buła: Department of Investment, College of Finance, University of Economics in Katowice, 40-287 Katowice, Poland
Krystian Pera: Department of Investment, College of Finance, University of Economics in Katowice, 40-287 Katowice, Poland

Energies, 2021, vol. 14, issue 3, 1-21

Abstract: The transition of the energy system in Poland has a long time horizon and demands a substantial investment effort supported by proper economic evaluation. It requires a precise Social Discount Rate (SDR) estimation as discounting makes the present value of long-term effects extremely sensitive to the discount rate level. However, Polish policymakers have little information on SDR: the predominant practice applies a priori fixed 5% discount rate, while studies devoted only to Poland are quite rare. To eliminate this research gap, our paper aims at estimating SDR for Poland, applicable in energy transition policies. We derive SDR for three datasets varying in length, twofold: using market rates via Consumption Rate of Interest (CRI) and Social Opportunity Cost (SOC) of capital, and prescriptive Ramsey and Gollier approaches based on Social Welfare Function (SWF). The results indicate that the rates based on CRI and SOC deviate substantially with changing data timeframes and market conditions, while prescriptive methods show much higher time stability. Due to long-term planning horizons for energy policies, we argue for adopting, as SDR in Poland, the longest dataset’s Ramsey-based rate of 4.72% which can be reduced to 4.39% by Gollier’s precautionary term (reflecting the uncertainty over future consumption growth), which are our main findings.

Keywords: energy policy; economic appraisal; social discount rate; Ramsey formula; consumption rate of interest; social opportunity cost (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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