The Stern Review

After the discussion on risks, uncertainties and probabilities in the economics of climate change, I would like to come back to the Stern Review that was introduced at the beginning. The Stern Review on the Economics of Climate Change has been used as a basis for UK governments to move forward with climate policy. The review examines the evidence on the economic impacts of climate change and the economics of stabilising greenhouse gases in the atmosphere. It concludes that 'the benefits of strong, early action on climate change outweigh the costs' of inaction.

"The effects of our actions now on future changes in the climate have long lead times. What we do now can have only a limited effect on the climate over the next 40 or 50 years. On the other hand, what we do in the next 10 or 20 years can have a profound effect on the climate in the second half of this century and in the next"- Stern Review

It concludes that tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries. They estimate that the excess of benefits over costs, in net present value terms, from implementing strong policies would be in the order of $2.5 trillion. Furthermore, on the question of uncertainties, it mentions that uncertainty is an argument for a more, not less, demanding goal, due to the significant adverse effects of worst-case climate change scenarios. Hence, the earlier effective action is taken, the less costly it will be.

Therefore, we can see that in some ways the review agrees with the kyoto protocol in that governments should do more to reduce emissions but the review presents several key factors that are significantly different from the scientific and economic community. The most important factor that is different is the estimated costs and benefits. Where the review concludes that the benefits of abatement outweigh the costs (by using low discount rates), the IPCC assessments and other studies have concluded that benefits are not significantly different from costs.

At this point, I would like to introduce an evening presentation from Bjørn Lomborg and Dimitri Zenghelis at LSE.

We have previously heard from Bjørn Lomborg on his stance in mitigating climate change. Dimitri Zenghelis, who was head of the stern review team, presents his side of the argument and refutes some of the points made by Lomborg (start viewing from 0:50:50). Particularly, he highlights the occurrence of low probability events (such as abrupt and adverse climate change) and how people buy insurance as well as including uncertainties and discounting in climate change mitigation. He also shows us that it is inappropriate to use Lomborg's methodology to mitigate climate change.

In my opinion, this again highlights the importance of choosing suitable models for estimating economic impacts of climate change. Zenghelis also mentions the problem of getting 'locked in' to a high carbon infrastructure if we delay the creation of innovative markets that might induce greener technology. This shows the importance of looking beyond the current century and further into the future and I believe this is an important aspect to be considered in mitigating climate change.