Dual Discounting for the Environmental Decision-Making

Nowadays, making sustainable decisions is one of the main priorities of government policies. Therefore, it is increasingly urgent to define investment decision support tools that ensure a long-term balance between environmental integrity, intergenerational equality, and economic efficiency. This research intends to demonstrate the crucial role of the Social Discount Rate (SDR) in Cost-Benefit Analysis (CBA). This issue is of particular interest for projects with environmental impacts, which would be excessively underestimated using traditional discounting procedures. The aim of this paper is to characterize an innovative econometric model of environmental-economic discounting for a fair assessment of environmental effects. This can be done by introducing environmental quality into the logical-mathematical scheme of the SDR. The main novelty is the definition of the environmental quality according to the investment sector of the project in order to obtain specific discount rates for the following issue categories: (i) biodiversity; (ii) forests; (iii) fisheries; (iv) climate and energy; (v) air pollution; (vi); water resources; (vii) agriculture. The estimation of environmental and economic discount rates for projects in Italy with impacts on air pollution allows testing of the defined model.