Vanderbilt Law Review

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If saving a life is worth spending $1 million today, how much should we spend to save a life in twenty years? The answer, according to the federal Office of Management and Budget (OMB), is $150,000. OMB uses a ten percent annual "discount rate" to convert future regulatory costs and benefits into their "present value."' Because government regulation of carcinogens cannot be expected to affect the cancer rate for twenty or thirty years, OMB's choice of discount rates has dramatic implications for regulatory policy. Its choice of discount rates has even greater impact on long-term global environmental issues such as ozone depletion and the greenhouse effect. For instance, if the greenhouse effect will cost society $100 billion twenty years from now, OMB's current discount rate would indicate that it is not worth spending $20 billion today to avert the harm.

Significant legal implications also accompany the discounting issue's policy ramifications. In Corrosion Proof Fittings v. EPA, the Fifth Circuit invalidated the Environmental Protection Agency's (EPA) carefully considered regulations of asbestos products. Among other objections to the regulations,' the court found EPA's method of comparing the costs and benefits of an asbestos ban to be unacceptable. The court held that EPA must discount future benefits and that EPA's discounting method gave too much weight to future deaths. Although our discussion concerns more than just toxics regulation, Corrosion Proof Fittings illustrates the significance of the issue not only for policy analysts but also for attorneys.

After several years of review, OMB recently proposed a substantial revision of its twenty-year-old discount policy. Among other changes, OMB proposes increased guidance for government agencies in the use of discount rates in cost-benefit analysis and a reduction of the discount rate from ten percent to seven percent. Coming two decades after the last revision, OMB's current proposal seems an appropriate point to take stock of federal discount rate policy, its underlying assumptions, its impact on environmental policy choices, and its lessons for the coming decades.

This Article attempts to untangle the complex and often obscure debate about the choice of discount rates. It will emphasize the issue of discounting lives, but that issue cannot be readily separated from the broader problem of discounting other regulatory costs and benefits. Thus, our discussion of discounting is also directly relevant to long- term environmental issues such as biodiversity. In particular, most of the same issues arise when cost-benefit analysis seeks to incorporate the intrinsic value placed on the continued existence of an endangered species or other nonhuman lives such as whales or redwoods.