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Stern Review

The Stern Review on the Economics of Climate Change is a 700-page report released for the Government of the United Kingdom on 30 October 2006 by economist Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE) and also chair of the Centre for Climate Change Economics and Policy (CCCEP) at Leeds University and LSE. The report discusses the effect of global warming on the world economy. Although not the first economic report on climate change, it is significant as the largest and most widely known and discussed report of its kind.[1]

Stern Review on the Economics of Climate Change

30 October 2006

Report

The Review states that climate change is the greatest and widest-ranging market failure ever seen, presenting a unique challenge for economics.[2] The Review provides prescriptions including environmental taxes to minimise the economic and social disruptions. The Stern Review's main conclusion is that the benefits of strong, early action on climate change far outweigh the costs of not acting.[3] The Review points to the potential impacts of climate change on water resources, food production, health, and the environment. According to the Review, without action, the overall costs of climate change will be equivalent to losing at least 5% of global gross domestic product (GDP) each year, now and forever. Including a wider range of risks and impacts could increase this to 20% of GDP or more, also indefinitely. Stern believes that 5–6 degrees of temperature increase is "a real possibility".[4]


The Review proposes that one per cent of global GDP per annum is required to be invested to avoid the worst effects of climate change. In June 2008, Stern increased the estimate for the annual cost of achieving stabilisation between 500 and 550 ppm CO2e to 2% of GDP to account for faster than expected climate change.[5]


There has been a mixed reaction to the Stern Review from economists. Several economists have been critical of the Review,[6][7] for example, a paper by Byatt et al. (2006) describes the Review as "deeply flawed".[8] Some economists (such as Brad DeLong[9] and John Quiggin)[10] have supported the Review. Others have criticised aspects of Review's analysis, but argued that some of its conclusions might still be justified based on other grounds, e.g., see papers by Martin Weitzman (2007)[11] and Dieter Helm (2008).[12]

The benefits of strong, early action on climate change outweigh the costs.

The scientific evidence points to increasing risks of serious, irreversible impacts from climate change associated with (BAU) paths for emissions.

business-as-usual

Climate change threatens the basic elements of life for people around the world—access to water, food production, health, and use of land and the environment.

The impacts of climate change are not evenly distributed—the poorest countries and people will suffer earliest and most. And if and when the damages appear it will be too late to reverse the process. Thus we are forced to look a long way ahead.

Climate change may initially have small positive effects for a few developed countries, but it is likely to be very damaging for the much higher temperature increases expected by mid-to-late century under BAU scenarios.

provides a tool for estimating the total impact on the economy; our estimates suggest that this is likely to be higher than previously suggested.

Integrated assessment modelling

Emissions have been, and continue to be, driven by economic growth; yet stabilisation of concentration in the atmosphere is feasible and consistent with continued growth.

greenhouse gas

"Central estimates of the annual costs of achieving stabilisation between 500 and 550ppm are around 1% of global GDP, if we start to take strong action now. [...] It would already be very difficult and costly to aim to stabilise at 450ppm CO2e. If we delay, the opportunity to stabilise at 500–550ppm CO2e may slip away."[3]

CO2e

The transition to a will bring challenges for competitiveness but also opportunities for growth. Policies to support the development of a range of low-carbon and high-efficiency technologies are required urgently.

low-carbon economy

Establishing a , through tax, trading or regulation, is an essential foundation for climate change policy. Creating a broadly similar carbon price signal around the world, and using carbon finance to accelerate action in developing countries, are urgent priorities for international co-operation.

carbon price

Adaptation policy is crucial for dealing with the unavoidable impacts of climate change, but it has been under-emphasised in many countries.

An effective response to climate change will depend on creating the conditions for international collective action.

There is still time to avoid the worst if strong collective action starts now.

impacts of climate change

The executive summary[2] states:

Background[edit]

On 19 July 2005 the Chancellor of the Exchequer, Gordon Brown announced that he had asked Sir Nicholas Stern to lead a major review of the economics of climate change, to understand more comprehensively the nature of the economic challenges and how they can be met, in the UK and globally.[13] The Stern Review was prepared by a team of economists at HM Treasury; independent academics were involved as consultants only. The scientific content of the Review was reviewed by experts from the Walker Institute.[14]


The Stern review was not released for regular peer-review, since the UK Government doesn't undertake peer review on commissioned reviews.[15] Papers were published and presentations held, that outlined the approach in the months preceding the release.[15]

former President of the World Bank

Paul Wolfowitz

Executive Director of the International Energy Agency

Claude Mandil

Member, Planning Commission, Government of India

Kirit Parikh

Former Director of UK Confederation of British Industry and Economic Advisor to Sustainable Development Commission

Adair Turner

Adviser to the UK Government on the long term links between transport and economic growth, and former chief executive of British Airways

Sir Rod Eddington

The Stern Review attracted positive attention from several sectors. Pia Hansen, a European Commission Spokeswoman, said doing nothing is not an option, "we must act now".[16] Simon Retallack of the UK think tank IPPR said "This [Review] removes the last refuge of the 'do-nothing' approach on climate change, particularly in the US."[16] Tom Delay of The Carbon Trust said "The Review offers a huge business opportunity."[16] Richard Lambert, Director General of the Confederation of British Industry, said that a global system of carbon trading is "urgently needed".[16] Charlie Kronick of Greenpeace said "Now the government must act and, among other things, invest in efficient decentralised power stations and tackle the growth of aviation."[16]


Asset managers F&C look to the business opportunities and say "this is an unprecedented opportunity to generate real value for our clients".[17] Brendan Barber, General Secretary of the Trades Union Congress, was optimistic about the opportunities for industry to meet demands created by investment in technology to combat climate change.[18] The Prince of Wales' Corporate Leaders Group on Climate Change, formed by 14 of UK's leading companies shared this hope. Chairman of Shell UK, James Smith, expressed the hope of the group that business and Government would discuss how Britain could obtain "first mover advantage" in what he described as "massive new global market".[19]


On 1 November 2006, Australian Prime Minister John Howard responded by announcing that A$60 million would be allotted to projects to help cut greenhouse gas emissions[20] while reiterating that Australia would not ratify the Kyoto Protocol. Much of this funding was directed at the non-renewable coal industry.


British Prime Minister, Tony Blair, stated that the Review demonstrated that scientific evidence of global warming was "overwhelming" and its consequences "disastrous" if the world failed to act.[21] The UK Treasury, which commissioned the report, simultaneously published a document of favourable comments on the Review. Those quoted include:[22]


Several academic economists are also quoted praising the Review (see Response of economists).

future consumption should be discounted simply because it takes place in the future and people generally prefer the present to the future (inherent discounting)

consumption levels will be higher in the future, so the of additional consumption will be lower

marginal utility

future consumption levels are uncertain

improved technology of the future will make it easier to address global warming concerns

Stern's later comments[edit]

In April 2008 Stern said that the severity of his findings were vindicated by the 2007 IPCC report and admitted that in the Stern Review, "We underestimated the risks [...] we underestimated the damage associated with temperature increases [...] and we underestimated the probabilities of temperature increases".[88][89] In June 2008, Stern said that because climate change is happening faster than predicted, the cost to reduce carbon would be even higher, of about 2% of GDP instead of the 1% in the original report.[5]


In an interview at the 2013 World Economic Forum, Stern said "Looking back, I underestimated the risks. The planet and the atmosphere seem to be absorbing less carbon than we expected, and emissions are rising pretty strongly. Some of the effects are coming through more quickly than we thought then" in the 2006 Review. He now believes we are "on track for something like four degrees".[90]

Climate change in the United Kingdom

Avoiding Dangerous Climate Change

Economics of global warming

Garnaut Climate Change Review

Global warming controversy

Politics of global warming

World Energy Outlook

Prosperity Without Growth

Barker, Terry (August 2008). "Special Topic: The Stern Review Debate". Climatic Change. 89 (3–4): 173–449. :2008ClCh...89..173B. doi:10.1007/s10584-008-9433-x. ISSN 1573-1480. S2CID 54026931.

Bibcode

Howarth, R.B. (April 2009). (PDF). Economics for Equity and the Environment website. Retrieved 20 May 2009.

"Policy Brief No. 3: Discounting, Uncertainty, and Climate Change"

Jensen, P.H. and E. Webster (2007), Australian Economic Review 40(2):421–431

Full text of the Stern Review, from HM Treasury

Full text of the Stern Review, archived on Wayback Machine

The Economics of Climate Change – The Stern Review

Economist.zoom: How to value a grandchild, 4 Dec 2006

Summary of key findings from the report

Gail Whiteman's findings of economic costs of arctic methane release added to the Stern review

linked index of resources.

"The Stern gang"

Centre for Climate Change Economics and Policy

The RIBA Trust Annual Lecture: Lord Stern (part of the International Dialogues: Architecture and Climate Change talks series)

In the media