A 2007 report by Frank Ackerman for Friends of the Earth that delves into the economic debate surrounding the Stern Review and the arguments of its critics. [1, 2] The report reviews the controversies surrounding the Stern Review, which expressed alarm at impending climate damages and endorsed prompt action. [7] It concludes that Stern's analysis is on sounder ground than that of his critics and that the Review may have even understated the urgency of the climate problem. [4, 7]

Debating climate economics: the Stern Review vs. its critics (2007)

Frank Ackerman is the author of the 2007 report, 'Debating climate economics: the Stern Review vs. its critics', which was written for the organization Friends of the Earth. [1, 2, 4] In the report, he reviews the controversies surrounding the Stern Review and argues that there is more support for Stern's analysis than for his conservative critics. [7] He suggests that, if anything, the Stern Review understates the urgency of the climate problem. [7]

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A significant point of contention among economists is the correct interest rate for discounting costs and benefits for future generations, a debate that remains unresolved because it is fundamentally a question of ethics. [1] The core of the issue involves settling the competing claims of different people across different time periods. [1] This ethical dilemma is exemplified by the disagreement following the 2006 Stern Review, which was criticized by economists like William Nordhaus for its very low discount rate. [1] Nordhaus argued that a higher rate was more appropriate, highlighting how the choice of discount rate is critical in shaping climate change policy.

Debate Over the Appropriate Intergenerational Discount Rate

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Several economists, notably William Nordhaus, challenged the Stern Review for its use of a low discount rate, advocating for a higher rate of 4.3%. [2] Nordhaus contended that Stern's rate gives excessive weight to impacts in the distant future. [2, 8] He concluded that applying a higher, more conventional discount rate would cause the review's 'dramatic results'—its urgent policy recommendations—to 'disappear'. [2, 12]

Criticism of the Stern Review's Low Discount Rate

A viewpoint suggested by some economists is that the discount rate applied to future environmental benefits and costs should be negative. This approach would mean that benefits and costs affecting future generations are valued more highly than those experienced by the current generation.

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