A Critique of the Stern Review’S Mitigation Cost Analyses and Integrated Assessment

This article is an assessment of the Stern Review on the Economics of Climate Change, a major climate policy study done for the UK government by a group led by Sir Nicholas Stern. In this article, I examine both the mitigation cost and integrated assessment aspects of the Review. Although the Review makes many significant contributions, I believe that the framework the Review adopted to formulate policy recommendations is difficult to understand, and probably not well matched to the problem being addressed, and that the Review’s specific recommendation for large emission reductions in the short run to facilitate stabilization of greenhouse gases in the atmosphere by mid-century is not justified by the analysis. This outcome was the result of using relatively high climate damage projections, relatively low GHG mitigation cost projections, and very low discount rate assumptions relative to current expert opinion and what is in the literature. Moreover, the Review’s formulation appears to treat the climate policy problem as a deterministic “one shot” benefit-cost analysis rather than a problem of sequential decision-making under uncertainty.

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