Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland
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 th...
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-01-01
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| Series: | Energies |
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| Online Access: | https://www.mdpi.com/1996-1073/14/3/741 |
| _version_ | 1797417538293858304 |
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| author | Monika Foltyn-Zarychta Rafał Buła Krystian Pera |
| author_facet | Monika Foltyn-Zarychta Rafał Buła Krystian Pera |
| author_sort | Monika Foltyn-Zarychta |
| collection | DOAJ |
| description | 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 <i>a priori</i> 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. |
| first_indexed | 2024-03-09T06:21:16Z |
| format | Article |
| id | doaj.art-cf27f7261a324f72b012bbb67c583b40 |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-03-09T06:21:16Z |
| publishDate | 2021-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-cf27f7261a324f72b012bbb67c583b402023-12-03T11:48:15ZengMDPI AGEnergies1996-10732021-01-0114374110.3390/en14030741Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for PolandMonika Foltyn-Zarychta0Rafał Buła1Krystian Pera2Department of Investment, College of Finance, University of Economics in Katowice, 40-287 Katowice, PolandDepartment of Investment, College of Finance, University of Economics in Katowice, 40-287 Katowice, PolandDepartment of Investment, College of Finance, University of Economics in Katowice, 40-287 Katowice, PolandThe 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 <i>a priori</i> 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.https://www.mdpi.com/1996-1073/14/3/741energy policyeconomic appraisalsocial discount rateRamsey formulaconsumption rate of interestsocial opportunity cost |
| spellingShingle | Monika Foltyn-Zarychta Rafał Buła Krystian Pera Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland Energies energy policy economic appraisal social discount rate Ramsey formula consumption rate of interest social opportunity cost |
| title | Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland |
| title_full | Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland |
| title_fullStr | Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland |
| title_full_unstemmed | Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland |
| title_short | Discounting for Energy Transition Policies—Estimation of the Social Discount Rate for Poland |
| title_sort | discounting for energy transition policies estimation of the social discount rate for poland |
| topic | energy policy economic appraisal social discount rate Ramsey formula consumption rate of interest social opportunity cost |
| url | https://www.mdpi.com/1996-1073/14/3/741 |
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