The Stern Review and the economics of climate change: an editorial essay

The Stern Review of the Economics of Climate Change (Stern et al. 2006a, b; Stern 2007) has been the catalyst of an enormous amount of discussion since its release in the fall of 2006. Policy makers see it as an authoritative report that makes an economic case for rapid reduction of greenhouse gas emissions. Most economists have a different opinion of the quality of the analysis, even though there is a virtual consensus among economists that climate change is a serious externality which calls for the immediate implementation of a carbon tax or some other type of policy intervention. Economists who have glanced at the Stern Review typically argue, for example, that its choice of ethical parameters (rate of pure time preference, rate of risk aversion) is peculiar, biased, and potentially misleading to be point of being counterproductive (Arrow 2007; Dasgupta 2007; Varian 2006; Yohe and Tol 2007a, b). Analysts who took a closer look at the Stern Review tend to notice a range of other assumptions that are questionable, and many have lamented what they perceive to be inadequate documentation (Jensen and Webster 2007; Mendelsohn 2006; Nordhaus 2007a; Pielke, 2007; Tol 2006; Tol and Yohe 2006; Yohe 2006; Yohe and Tol 2007b). Some papers claim that the Stern Review underestimated the impacts of climate change (Neumayer 2007; Spash 2007; Sterner and Persson 2007), while other papers argue that human-induced climate change is not real (Byatt et al. 2006; Carter et al. 2006). Neither position has any empirical support. The Stern Review team has published a number of rebuttals to our Climatic Change (2008) 89:231–240 DOI 10.1007/s10584-008-9431-z