where r is the discount rate and t is the time period (usually years).

Example: $1 twenty years from now at a 3% annual discount rate is worth $0.55 today

Present Value = $1.00 / (1 + 0.03)20 = 1 / (1.03)20 = 1 / 1.806111 = 0.553676 = $0.55

Why do we discount benefits?

The benefits of reductions in air pollution may need to be discounted for several reasons.

1. Today’s society values benefits that occur today more than benefits in the future. Therefore,

we must discount in order to compare those future benefits with current benefits.

2. For a cost-benefit analysis, benefits estimates need to be comparable to the cost estimates.

Discounting can be used to compare the future streams of benefits and costs.

3. BenMAP only estimates changes in adverse health effects based on changes in air quality for

one specified analysis year, even though certain health benefits may occur after the analysis year.

Discounting can be used to compare the future benefits with benefits occurring during the analysis

year.

 

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