Discounting the Future Re-examined
10 May 2023
About this Seminar
Mike Smart, Chief Economist at IPART, discusses "Discounting the future re-examined: how climate change makes us think differently about the time value of money, and what that means for economic regulation".
Economic regulators often discount future cashflows by the Weighted Average Cost of Capital (WACC) of a benchmark firm. However, this ignores the inter-generational externality. For essential services infrastructure with mullti-decade economic lives, this can be important. It may be appropriate to consider a Social Discount Rate (SDR) that gives weight to the preferences of future generations - no more so than when considering investments to mitigate or adapt to climate change. In this presentation, Mike will explain the differences between the SDR and WACC, and then illustrate how a SDR could lead to different regulatory outcomes on pricing and licensing questions, including implications for public versus private delivery of services.
Speaker Biography
Mike Smart - Deputy, IPART
BA Magna Cum Laude in Astrophysics from Harvard
Mike has been the Chief Economist at IPART since May 2015 and was appointed a Deputy Tribunal member in February 2020. Prior to these IPART roles, he was a consulting economist in private practice for 15 years.
Mike has given expert evidence in the Federal Court of Australia and the Australian Competition Tribunal. He advised the Public Accounts Committee of the NSW Parliament on inquiries into the Forestry Commission and financing urban infrastructure. His academic training is in astrophysics and his early career work was in engineering and physical sciences.
