38 Commenting on the 7 real discount rate OMB 2003 p 33 observed The 7 percent

38 commenting on the 7 real discount rate omb 2003 p

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are used—a 7% and a 3% real discount rate—even though the purpose is not regulatory. 38 Commenting on the 7% real discount rate, OMB (2003, p. 33) observed: “The 7 percent [real] rate is an estimate of the average before-tax rate of return to private capital in the U.S. economy. It is a broad measure that reflects the returns to real estate and small business capital as well as corporate capital. It approximates the opportunity cost of capital, and it is the appropriate discount rate whenever the main effect of a regulation is to displace or alter the use of capital in the private sector. OMB revised Circular A-94 in 1992 after extensive internal review and public comment.”
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Chapter 4 — Study Methodology and Economic Analysis Framework 4-11 Internal Rate of Return (IRR): The IRR on an investment is interpreted as the percentage yield on an R&D investment. In mathematical terms, the IRR is the discount rate that sets the NPV equal to zero or results in a BCR of 1. The IRR’s value can be compared with conventional rates of return for comparable or alternative investments. 39 4.3 Approach to Environmental Health and Emissions Benefits Estimation Emissions changes associated with gains in module technologies were approximated by comparing observed weighted average conversion efficiencies with counterfactual efficiencies. Greenhouse gas emissions and energy security benefits are the physical units of emissions changes. The Co-Benefits Risk Assessment (COBRA) model provides estimates of health effect impacts and the economic value of these impacts resulting from changes in the physical units of emitted pollutants. See also Appendix D. The COBRA model was developed by the U.S. Environmental Protection Agency (EPA) to be used as a screening tool that enables users to obtain a first-order approximation of benefits due to different air pollution mitigation policies. At the core of the COBRA model is a source-receptor (S-R) matrix that translates changes in emissions to changes in particulate matter (PM) concentrations. The changes in ambient PM concentrations are then linked to changes in mortality risk and changes in health incidents that lead to health care costs and/or lost workdays. COBRA translates the health effects into changes in monetary impacts using estimated unit values of each health endpoint. 4.4 Approach to Energy Security Benefits Estimation Solar energy represents a secure domestic source of energy in the face of threats to energy supply and provides clean energy to avoid long-run security risks from GHG emissions and climate change. Although national security benefits are difficult to monetize, they represent an important advantage of renewable energy. Because of its distributed nature, PV holds additional energy security benefits. In the United States, 95% of PV is distributed throughout small-scale on- and off-grid applications, making it less vulnerable to threats to the power supply than central power infrastructure. Per EERE direction, energy security benefits are presented quantitatively in barrel of oil equivalents (BOE). A BOE represents the energy released by burning a barrel of oil, or 1,700 kWh.
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