Declining Discount Rates: Evidence from the UK



Table 3. Certainty Equivalent Discount Rates

Year/ Model

AR(4)

Regime

Switching

State
Space

3.50

3.50

3.50

20

3.68

3.35

2.22

40

3.58

3.31

2.02

60

3.52

3.28

1.87

80

3.48

3.25

1.76

100

3.43

3.22

1.68

150

3.33

3.14

1.57

200

3.13

3.05

1.51

250

2.77

2.93

1.47

300

2.17

2.75

1.45

350

1.12

2.45

1.43

400_________

0.39

2.14

1.44

Table 4. Average MSFEs

Model

Criterion

AR(4)

Regime

Switching

State
Space

AMSFE

2.330

1.486

0.195

AMSFE (B)

0.875

0.527

0.135

AMSFE (P)

0.562

0.332

0.132

AMSFE (QS)

0.659

0.407

0.071

AMSFE (TH)

0.818

0.480

0.137

Notes: The weighting functions are as follows: Bartlett(B), Parzen(P), Quadratic-Spectral
(QS) and Tukey-Hanning (TH).

Table 5: Value of Carbon Damages

Model__________

Carbon Values
(£/tc)

Relative to

Constant Rate

Constant (3.5%)

535

AR(4)

5.78

7.9%

Regime Switching

6.21

16.1%

State Space

16.73

212.6%

Table 6: The Costs and Benefits of Nuclear Build in the UK

(£/KW)

CAPEX

OPEX

DECOM

Rev/es

C C

NPV

Relative to 3.5%

3.5%

2173

2336

427

4062

228

-646

AR(4)

2167

2245

396

3904

215

-689

-6.6%

RS

2178

2401

479

4176

249

-633

8.0%

SS

2196

2973

1126

5170

547

-577

8.9%



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