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The Stern Review: A deconstruction

journal contribution
posted on 2023-06-08, 11:06 authored by Richard TolRichard Tol, Gary W Yohe
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 400 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. © 2008 Elsevier Ltd. All rights reserved.

History

Publication status

  • Published

Journal

Energy Policy

ISSN

0301-4215

Publisher

Elsevier

Issue

3

Volume

37

Page range

1032-1040

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-04-17

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