Is Stern Review on Climate Change Alarmist?

Abstract

This paper is concerned with the conclusion of the Stern Review that the cost of climate change could be as much as 20% of the global GDP. In this paper, I identify two major sources of variation in the estimates of the aggregate cost of climate change. One is the disagreement among the AOGCM models on the magnitude of climate change, and the other is the divergence among the economic models on how harmful these changes will be to the economy. The main conclusion of this paper is that only under the alarmist approach—which assumes both the most severe climate change and the most extreme estimate of climate change damage to the economy—we can be convinced that the cost of climate change is close to 20% of the global GDP in 2100. In most other cases, the cost will be under 1% of the global GDP.