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of return on inflation adjusted 10-year Treasury Securities over the last 30 years (1991-2020) is 2.0 percent. These rates are not without historic precedent, such that over the last 60 years the inflation adjusted 10-year Treasury Securities is 2.3 percent. Current real rates of returns below 2 percent are expected to persist. The U.S. Congressional Budget Office (CBO) in its September 2020 Long Term Budget Outlook forecasts real rates of return on 10-Year Treasury Securities to average 1.2 percent over the next 30 years (U.S. CBO 2020). This new information suggests that the consumption rate of interest is notably lower than 3 percent. CEA (2017) examined additional forecasts of 10-Year Treasury Securities and data on futures contracts, reaching the conclusion that the appropriate consumption discount rate should be at most 2 percent.

Figure 1: Monthly 10-Year Treasury Security Rates, Inflation-Adjusted[1]

A graph showing security rates spiking in the mid-1980s and slowly falling back to rates that they were in the mid-1970s around today; the average from 1962 to 2020 is 2.3% and a range of c. 1975 to 2002 was measured in Circular A-4

Several surveys have been conducted in recent years to elicit experts’ views on the appropriate discount rates to use in an intergenerational context (e.g., Drupp et al. 2018; Howard and Sylvan 2020). For example, Drupp et al. (2018) offers confirming evidence that the economics profession generally agrees that the appropriate social discount rate is below 3 percent as reflected in the recent trends in data. They surveyed over 200 experts and found a “surprising degree of consensus among experts, with more than three-quarters finding the median risk-free social discount rate of 2 percent acceptable” (Drupp et al. 2018).[2]

  1. ↑ Monthly 10-Year Treasury Security returns, adjusted for inflation. Real interest rates prior to 2003 (green line) are calculated by subtracting the annual rate of inflation as measured by the CPI-U from the nominal rate of return on 10-Year constant maturity Treasury Securities. Interest rates from 2003 onwards (brown line) are based on the 10-Year Treasury Inflation-Protected Securities.
  2. ↑ For a detailed explanation of discounting concepts and terminology see EPA’s Guidelines for Preparing Economic Analysis (2010). https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses
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