The global practice of Cost-Benefit Analysis (CBA), to analyse the
welfare impacts of public investments, has undergone profound changes in
recent years. The reforms in general practice have primarily been
driven by the discussions of the implications of climate change and
environmental degradation. Central to the discussion has been the social
discount rate, used to value future costs and benefits in the present,
and also the dual discount rates for "environmental goods", as goods
that are of no, or of risky substitution. Official rates, in many
nations, are calculated using the "Ramsey" formula. The literature has
explored the relevant factors in this formula, but with less attention
paid to the selection of the rate of future growth in consumption, or to
the setting of dual discount rates in national practice guidance.
Through considering the case of Ireland, this study demonstrates that
the selection of growth rates in consumption, in the context of future
uncertainty, requires the use of plausible scenarios, rather than
historical trends or forecasts. By employing economic scenarios,
alongside established values for the other factors, the main discount
rate for Ireland is calculated in a range of 1.7 to 2.8 per cent.
Seperately, a dual discount rate, for capital that cannot be replaced,
is estimated at ≤1.3 per cent. The main discount rate is validated by
comparison against discount rates found in the literature, applied in
other comparable nations, and by the rate estimated from the real yield
on government bonds. All four independent lines of evidence support the
range estimated. This demonstrates that the Irish government's estimated
discount rate, of 4.0 per cent, is not credible, and needs reduction,
alongside introduction of dual discounting.