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An Even Sterner Review - Introducing Relative Prices into the Discounting Debate

Thomas Sterner ; U. Martin Persson (Institutionen för energi och miljö, Fysisk resursteori)
Review of Environmental Economics and Policy (1750-6824). Vol. 2 (2008), 1, p. 61-76.
[Artikel, refereegranskad vetenskaplig]

By estimating that the cost of unmitigated climate damages is an order of magnitude higher than most earlier estimates, the Stern Review on the Economics of Climate Change has had a major influence on the policy discussion on climate change. Not surprisingly, severe criticism has been levied against the report, especially by those who claim that the Stern Review's results hinge mainly on a discount rate that is too low. While we have no strong objections to the discounting assumptions adopted in the Stern Review, our main point in this article is that the conclusions reached in the Stern Review can be justified without using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities caused by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services. This will raise the estimated damage of climate change and modify as well as counteract the effect of discounting. We illustrate this effect using a slightly modified version of Nordhaus's DICE model and show that taking relative prices into account can have as large an effect on economically warranted abatement levels as a low discount rate.



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Denna post skapades 2008-10-21. Senast ändrad 2014-10-09.
CPL Pubid: 76038

 

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Institutioner (Chalmers)

Institutionen för nationalekonomi med statistik, Enheten för miljöekonomi (GU)
Institutionen för energi och miljö, Fysisk resursteori

Ämnesområden

Energi
Hållbar utveckling
Ekonomi och näringsliv

Chalmers infrastruktur