May 24, 2020


Properly, the explosive “Stern Review: The Economics of Climate Change” report to British Prime Minister Tony Blair from Sir Nicholas Stern is being picked at by climate change economists worldwide. The report is clear in its warnings about the severity of climate change and certain in its conclusions that “the benefits of acting now outweigh the costs.”

Most interesting for noneconomists, however, is the general direction of the review’s conclusions. The most apparent of these is that the review is dire in its warnings – climate change will cut 5 percent to 20 percent of global GDP each year – and hopeful in its outlook: “the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1 percent of global G.D.P. each year.”

On the other hand, inaction, it says, “could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century.”

Economists who think the review was extreme doubt the cost of climate change in the absence of carbon reductions and question the idea that the benefits of the cuts outweigh the costs. We cannot declare a winner for the best economic model to predict the effects of climate change, but a couple of issues are apparent. The first is that if the world waits for definitive evidence of broad and lasting harm to people as a result of a warming earth, the cost of doing anything will be much higher, if anything can still be done.

Second, the review’s conclusion that improvements in technology can affordably reduce carbon emissions is politically appealing because it can be carried out incrementally, because it is flexible – advancements can come from numerous areas rather than from a single source – and because it is understandable. People are accustomed to new products running more efficiently than old ones, so the expectation that, say, a car a decade from now would use less gas to travel a mile makes sense.

The debate on climate change has moved beyond whether the phenomenon exists to its level of severity, measured in nature lost to dollars lost. Since the Stern review was released earlier this week several economists have questioned the claim that acting now outweighs the costs of waiting. From a strictly monetary point of view they may be right in doubting the review, which should be amended if its numbers are faulty.

Beyond the review, however, the losses that count are far more than monetary, and the chance, as uncertain as it may be, of reducing those losses through careful, determined action is well worth taking.

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