A Review of the Stern Review on the Economics of Climate Change

The Stern Review calls for immediate decisive action to stabilize greenhouse gases because “the benefits of strong, early action on climate change outweighs the costs.” The economic analysis supporting this conclusion consists mostly of two basic strands. The first strand is a formal aggregative model that relies for its conclusions primarily upon imposing a very low discount rate. Concerning this discount-rate aspect, I am skeptical of the Review's formal analysis, but this essay points out that we are actually a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged. The Review's second basic strand is a more intuitive argument that it might be very…