Suppose the Environmental Protection Administration (EPA) proposes a change in automobile exhaust systems that reduces the amount of greenhouse gases (GHGs) emitted into the atmosphere, and they estimate that the net present value (NPV) of this policy change is worth $3 trillion dollars. To form this estimate, the EPA staff members assumed a particular social discount rate and a particular stock dissipation rate for GHGs. What happens to the NPV of this proposed policy if the staff members use a smaller stock dissipation rate?

Question

Quizplus · Accepted Answer

A smaller stock dissipation rate means that GHGs will have a longer lifetime in the atmosphere, which increases the benefits of reducing their emissions. Therefore, using a smaller stock dissipation rate would increase the estimated NPV of the policy change.

Suppose the Environmental Protection Administration (EPA) Proposes a Change in Automobile