10 Where the appraisal of a proposal depends materially upon the discounting of effects in the very long term, the received view is that a lower discount rate for the longer term (beyond 30 years) should be used.6
11 The main rationale for declining long-term discount rates results from uncertainty about the future. This uncertainty can be shown to cause declining discount rates over time.7
12 In light of this evidence, it is recommended that for costs and benefits accruing more than 30 years into the future, appraisers use the schedule of discount rates provided in Table 6.1 below.
TABLE 6.1:THE DECLINING LONG TERM DISCOUNT RATE
Period of years | 0-30 | 31-75 | 76-125 | 126-200 | 201-300 | 301+ |
3.5% | 3.0% | 2.5% | 2.0% | 1.5% | 1.0% |
_____________________________________________________________________________
6 OXERA (2002)
7 Weitzman (1998, 2001) and Gollier (2002)