Stern Review

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Sir Nicholas Stern, author of the report.

The Stern Review on the Economics of Climate Change is a report on the effect of climate change and global warming on the world economy compiled by economist Sir Nicholas Stern for the government of the United Kingdom. Released on October 30, 2006, and containing over 700 pages, the Stern Review is one of the first major government-sponsored reports on global warming conducted by an economist and not an atmospheric scientist.^[1]

Its main conclusions are that one percent of global GDP is required to be invested in order to mitigate the effects of climate change, and that failure to do so could risk a recession worth up to twenty percent of global GDP.

Stern’s report^[2] suggests that climate change threatens to be the greatest and widest-ranging market failure ever seen, and it provides prescriptions including environmental taxes to minimize the economic and social disruptions. He stated that "our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century."^[3]^[4]

1 Positive response
2 Critical response
3 References
4 See also
5 External links

[edit] Positive response

The Review attracted a great deal of positive attention. Pia Hansen, a European Commission Spokeswoman, said doing nothing is not an option, "we must act now".^[5] 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."^[5] Tom Delay of The Carbon Trust said "The Review offers a huge business opportunity."^[5] Richard Lambert, Director General of the Confederation of British Industry, said that a global system of carbon trading is "urgently needed".^[5] 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."^[5]

Miles Templeman, Director-General of the Institute of Directors, said: “Without countries, like the US, China or India, making decisive commitments, UK competitiveness will undoubtedly suffer if we act alone. This would be bad for business, bad for the economy and ultimately bad for our climate.”^{[citation needed]}

Asset managers F&C look to the business opportunities and say "this is an unprecedented opportunity to generate real value for our clients"^{[citation needed]}

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.^{[citation needed]}

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 markets.”^{[citation needed]}

On November 1, Australian Prime Minister, John Howard, responded by announcing that AU$60 million would be allotted to projects to help cut greenhouse gas emissions [1] while reiterating that Australia would not ratify the Kyoto Protocol. Much of this funding is 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.^[6]

[edit] Critical response

William Nordhaus, an economist who has done several studies on the economics of global warming, criticised the Review for its near-zero discount rate assumption^[7]:

“The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today’s market place. So the central questions about global-warming policy — how much, how fast, and how costly — remain open. The Review informs but does not answer these fundamental questions.”

Bjørn Lomborg criticised the Stern Review in the conservative OpinionJournal^[8]:

“Mr. Stern's core argument that the price of inaction would be extraordinary and the cost of action modest [...] falls apart when one actually reads the 700-page tome. Despite using many good references, the Stern Review on the Economics of Climate Change is selective and its conclusion flawed. Its fear-mongering arguments have been sensationalized, which is ultimately only likely to make the world worse off.”

Professor Bill Mcguire of Benfield UCL Hazard Research Centre said that Stern may have greatly underestimated the effects of global warming. ^[5]

Martin Livermore, of the Scientific Alliance (a British non-profit organisation of industry-friendly experts that promotes climate change scepticism), said that "climate is not driven primarily by human use of fossil fuels" and that the money to be spent is unlikely to have much effect: it would be better spent on the world's poor.^{[citation needed]}

The Confederation of British Industries, the British Chambers of Commerce pointed out the dangers to business of additional taxation.^{[citation needed]}

Ruth Lea, Director of the Centre for Policy Studies, questions if there is scientific consensus about global warming. She alleges that "authorities on climate science say that the climate system is far too complex for modest reductions in one of the thousands of factors involved in climate change (i.e., carbon emissions) to have a predictable effect in magnitude, or even direction." About economic models, upon which Stern relied for his projections, her experience was that forecasting just two or three years ahead was usually wrong. She described the problem of drawing conclusions from combining scientific and economic models as ‘monumentally complex’. She doubted whether international cooperation was really possible. She concluded that she thought that this Review was designed to cloak the motives of a government that wanted some moral justification for increasing taxation on fuels.^[9]

Also from the Centre for Policy Studies, Nigel Lawson — who was Chancellor of the Exchequer in Margaret Thatcher's Conservative government in the 1980s — warned of what he called “eco-fundamentalism” in an 18-page report published just 2 days after the 700-page Stern Review.^[10]

The Business, a British magazine, reported on 2 November that, according to a leaked United Nations report obtained by the magazine, mitigating climate change could cost up to 5% of global gross domestic product ^[11]. Journalist Fraser Nelson argues that “if the Intergovernmental Panel on Climate Change figures [undermining Stern’s economic rationale] are right, they open up the possibility that the British proposals would cost as much as they save, making them redundant.”

Nigel Farage, leader of the UK Independence Party, disagreed there was scientific consensus on global warming. At best, he said, there is uncertainty and politicians world-wide are jumping on the ‘green’ bandwagon, but, if they want popular support, they’d better be sure that this is not simply the ‘new witchcraft’. ^[12].

Jerry Taylor of the Cato Institute, an American libertarian think-tank and climate change sceptic promotion organisation, criticized Stern's conclusion, taking a calculation by himself ^[13]:

“Stern’s investment advice makes sense only if you think that warming will hammer GDP by 10% a year. You don’t gain much at all from emission cuts, however, if you think GDP will only drop by 5% a year if we do nothing. And if you think warming will only cost the global economy 2% of GDP every year, [...] then Stern’s investment advice is [sheer] lunacy.”

David Brown and Leo Peskett of the Overseas Development Institute, a UK think-tank on international development, argued that the key proposals in relation to how to use forests to tackle climate change may prove difficult to implement ^[14]:

“Radical ideas are needed not only at the level of understandings but also of forward strategies. The Stern Review is much stronger on the former than the latter, and leaves a lot of questions unanswered on implementation, particularly the downstream practicalities of bringing avoided deforestation into climate mitigation efforts.”