In chapter 3 (around page 58), Alan takes exception to the effects of discount rates, for example in the environmental economics set out in the Stern Review. Alan states his own response, that "... Many natural resources ... become more valuable in the future, not less... But the discount rate always subtracts from future value". I think, here, he is in danger of blurring the distinction between social discount rates (as per wiki at : http://en.wikipedia.org/wiki/Social_discount_rate) and economic / financial discount rates.
The main feature of economic / financial discount rates is that they are primarily a device for calculating the effects of the changes in the value of money over time (eg it's 'purchasing power'), not to the intrinsic value of assets that might be represented in monetary terms. Money today is (under the basic economic standpoint of most commentators) more valuable than money in the future. We could still hold the view that a particular natural asset is intrinsically worth more in the future than it is today. Both these conditions can occur at the same time - ie we have a stock of money over time and a stock of natural assets over time. The money will be less valuable over time and the natural assets more valuable over time.
Let's use an example to work this through in stages.
In an investment appraisal and Net Present Value calculation, if we cut down some trees and turn them into money now, we forego the opportunity to cut down the trees in the future, when the trees are more valuable.
Step one - At constant time value of money - The amount of value foregone by cutting them down now rather than later (money obtainable by selling the cut trees in the future minus money obtainable by selling the cut trees today) is a relevant cost which reduces the NPV. All other things being equal (including the time-value of money), it would make economic sense to wait and cut them down later.
Step two - The time value of money comes in - as stated above, money is worth less in the future, so if we wait and cut the trees down in the future, the money we would then get for selling the cut trees would be worth less (per unit of money, not necessarily in total) than it would be now.
Step three - Now let's put these two effects (the time value of money and the time value of the trees) together at the same time. If (and this is a big 'if') we assume for now that the rate at which the trees appreciate in value over time is exactly the same as the rate at which money depreciates (ie discounts) over time, then from an economic investment and NPV perspective (and all other things being equal), there is no advantage either way - cutting the trees now or later is equally economic - ie it provides the same absolute amount of monetary value (in terms of purchasing power to convert into other things like heat or furniture) .
So the main issue to address is not the discount rate of the value of money over time, but the rate at which natural assets appreciate over time, how this compares with the discount rate of money, and what this tells us about the financial pressures either way (ie either the pressure to convert the natural assets into cash sooner or to convert them into cash later).
There is a further consideration, of course, which is what level of remaining trees, left in their natural environment, is needed in order to maintain a sustainable level of tree populations and ecosystem in the long-term, but that then takes us back to my earlier concept of the Bounded Efficiency Space - see other blog comments about this. The smaller the 'exploitable surplus' above the equilibrium level of trees, the more valuable each exploitable tree will become, through the effects of supply and demand economics. As long as the equilibrium number of trees are maintained (ie classified and protected as 'non-exploitable') then the exploitable trees will become more and more valuable over time, possibly on an exponential curve - with this appreciation rate potentially outstripping any modest discount rate of money. The effect of this could be to slow down the rate of exploitation of surplus trees over time, because it makes increasingly strong economic sense to wait rather than cut, until the point where the last exploitable surplus tree is so valuable that only the richest person on Earth can afford to pay for it to be cut down, or to buy the goods made from it! The person who owned it before it was cut down might become very cash-rich very suddenly. Beyond that point, only the equilibrium level of trees remains and there are no exploitable surplus trees.
My Bounded Efficiency Space approach lends itself to supporting John Roemer's "Sustainabilitarian" approach to discounting (social discounting and financial discounting), as signposted in wiki at:
http://en.wikipedia.org/wiki/Stern_Review
Roemer's conclusions from a 2009 presentation include the following propositions:
"Sustainability is arguably a very attractive ethic.
Human quality of life can be sustained for ever at a level 31% higher than the year 2000 reference level while following a low emissions path that stabilizes atmospheric concentration at 450ppm.
Our path recommends much higher investment in capital and knowledge than we currently have."