The Stern Review: Economics gets a heart

By Dani Thompson ’12

The Stern Review on the economics of climate change is a 600+ page document published in 2006 by British economist, Sir Nicholas Stern. In an article published by The First Post in 2006, Stern admitted that up until 2005, less a year before the report was published, “[I] had an idea what the green house effect was but wasn’t really sure.” although shortly after beginning to compile the report he was, “convinced that this was a really big and fundamental issue.” (Full article here). Of course, I will not disagree with the latter statement, but I am always weary to read reports on climate change issues which are drawn up by non-scientists or environmentally concerned persons. This concern is based on personal experience, having read report after report focused solely on monetary or political values rather than ethical reasons to mitigate climate change. However, by paying close attention to social costs of climate change, including impacts resulting from “discounting the future” I think that this report had a good balance of motivation. This balance is further emphasized in the video below, narrated by Sir Nicholas Stern himself. I highly suggest for anyone who has not read the report (or for those who have but were possibly confused by all of the economic jargon) to take a few minutes to watch this video for clarification.

Stern Review on Economics of Climate Change

Just as in the report, the video focuses in on the fact that by working to manage harmful climate changing behaviors immediately and forcefully will be the best solution both economically and socially. The most prominent argument made by the review is that the benefits of limiting GHG emissions now will outweigh the costs of waiting to do so in the future.

While I myself do not feel qualified to critique the review’s (confusing!) equations and economic theories which prove theses costs and benefits in numerical terms, others have made their criticisms be heard…loud and clear. One of these articles, “A Review of the “Stern Review on the Economics of Climate Change” by William D. Nordhaus can be found here. Among other things, Nordhaus argues that the Stern Review was hastily prepared and that many of the review’s calculations were inaccurate and too ambiguous. He presents his case,

“the Review’s radical view of policy stems from an extreme assumption about discounting. Discounting is a factor in climate-change policy indeed in all investment decisions that involves the relative weight of future and present payoffs…The Review proposes ethical assumptions that produce very low discount rates. Combined with other assumptions, this magnifies impacts in the distant future and rationalizes deep cuts in emissions, and indeed in all consumption, today. If we substitute more conventional discount rates used in other global-warming analyses, by governments, by consumers, or by businesses, the Review’s dramatic results disappear…”

While this argument is valid, it is falling into the category of reports I mentioned earlier, the ones too focused on monetary values and politics of climate policy debate. I’m not an expert, and sure, the Stern review may have its flaws, but at least at the heart of their argument, there is actually some heart.