Conference Agenda

The poor have higher present biases and face higher interest rates, but in a simple model of lumpy investment, only the latter matter when deciding whether to invest in a green durable. Non-discriminating subsidies favor the rich, who are more likely to choose green durables, but they incentivize the poor more strongly. Only full subsidies (i.e., subsidies that fully compensate for the initial price difference between green and brown durables) can ensure full allocative efficiency and fairness. Such full subsidies induce the systematic choice of the green durable and are therefore not compatible with a positive private, social or environmental discount rate. The latter is defined as a social discount rate consistent with the net-zero target: it is lower than usual social discount rates, but is still positive in the presence of carbon capture technologies. Credit policies may ensure allocative efficiency and fairness over a wider range of situations.