A commentary on assumptions of discounting parameters in the Stern Review on the economics of climate change

The Stern Review concludes that human beings can avoid a loss of 20% of the present value of consumption due to climate change if nations immediately reduce GHG emissions with a loss of only 1% of consumption per year. Since this conclusion varies from earlier studies, many reviews of the Stern Review focus on criticizing this conclusion focusing on its extreme assumption of discounting rates. However, only a few have justified their arguments through empirical work. Thus, this paper aims to provide empirical evidence to support their theories. The Review's original IAM model and methodology are improved and its results are replicated. Its conclusions can barely survive with alternative conventional values such as higher discount rates. The paper conducts comparative tests demonstrating the effect these other parameter values can have on the loss of the consumption. These tests reveal large changes in the Review's estimate of a 20% loss.