Review of Environmental Economics and Policy Advance Access originally published online on April 23, 2008
Review of Environmental Economics and Policy 2008 2(1):45-60; doi:10.1093/reep/rem023
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Is the Stern Review an Economic Analysis?
* Yale University, 230 Prospect Street, New Haven, CT 06511; telephone: 203-432-5128; e-mail: robert.mendelsohn{at}yale.edu.
Although the Stern Review presents aggregate climate damages and abatement costs in dollars, in many ways it is not an economic analysis. First, and most importantly, it does not seek to minimize the present value of the sum of abatement costs and climate damages. Rather it compares the abatement cost of a single aggressive program with the climate damages of doing nothing at all for two centuries. Second, it does not use the same assumptions in the two cases. Third, it makes very strong assumptions about abatement that may underestimate near-term costs by several-fold. Fourth, it makes even stronger assumptions about climate damages that may overestimate damages by an order of magnitude. All economic analyses recommend near-term abatement, but the Stern Review argues for very aggressive near-term abatement. This article argues that such a policy would be a mistake. The bulk of these mitigation dollars would be less costly and far more effective if spent in future periods.
I would like to thank the referees for their helpful advice and Suzanne Leonard for her careful editing.