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The Stern Review: A deconstruction

Listed author(s):
  • Tol, Richard S.J.
  • Yohe, Gary W.

Using a simple model designed for transparency but nonetheless calibrated to support the much-quoted damage estimates of the Stern Review of the Economics of Climate Change, we demonstrate significant sensitivity of those results to assumptions about the pure rate of time preference, the time horizon, and the rates of risk and equity aversion used to compute certainty- and equity-equivalent annuities. Most importantly, we demonstrate enormous sensitivity to presumed constant regional vulnerability and underlying assumptions about adaptive capacity. Manipulation of any of these parameters one at a time across reasonable ranges can diminish damage estimates by as much as 84% or, in the case of extending the time horizon with the Review's low discount rate, increase damage estimates by 900%. We also confirm the usual result that limiting atmospheric concentrations to specific benchmarks above 400Â ppm cannot eliminate all damages. Nonetheless, we applaud the Stern Review author team for reconfirming that the climate problem can be approached productively as an economic problem whose solutions can be explored with the tools of decision analysis.

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 3 (March)
Pages: 1032-1040

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Handle: RePEc:eee:enepol:v:37:y:2009:i:3:p:1032-1040
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. David Pearce, 2003. "The Social Cost of Carbon and its Policy Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 362-384.
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  9. Arrow Kenneth J, 2007. "Global Climate Change: A Challenge to Policy," The Economists' Voice, De Gruyter, vol. 4(3), pages 1-5, June.
  10. Simon Dietz & Chris Hope & Nicholas Stern & Dimitri Zenghelis, 2007. "REFLECTIONS ON THE STERN REVIEW (1) A Robust Case for Strong Action to Reduce the Risks of Climate Change," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 121-168, January.
  11. Daniel H. Cole, 2007. "The Stern Review and its critics: implications for the theory and practice of costs-benefits analysis," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 4, November.
  12. Gary W. Yohe & Richard S.J. Tol & Dean Murphy, 2007. "On Setting Near-term Climate Policy while the Dust Begins to Settle: The Legacy of the Stern Review," Working Papers FNU-129, Research unit Sustainability and Global Change, Hamburg University, revised Mar 2007.
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  16. Lorraine Hamid & Nicholas Stern & Chris Taylor, 2007. "REFLECTIONS ON THE STERN REVIEW (2) A Growing International Opportunity to Move Strongly on Climate Change," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 169-186, January.
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  18. Amiel, Yoram & Creedy, John & Hurn, Stan, 1999. " Measuring Attitudes towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
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  20. Eric Neumayer, 2007. "A missed opportunity: the Stern review on climate change fails to tackle the issue of non-substitutable loss of natural capital," LSE Research Online Documents on Economics 3059, London School of Economics and Political Science, LSE Library.
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