What you need to know about...The Stern Review

By Bianca Pasca

The science behind climate change often dominates climate news. But increasingly, the economic impact is coming to the fore: and we have The Stern Review to thank for this.

• What is The Stern Review?

The Economics of Climate Change:The Stern Review is a report published in 2006 and led by Nicholas Stern then Head of the UK Government. In the report, the economic costs and risks of not acting on the problem of climate change are balanced against the benefits of serious, early action- it was actually the first report of its kind to do this!
The review was commissioned by the British government, to report to the Prime Minister, Tony Blair, considering the problem from a medium- to long-term perspective. It used economic models- including integrated assessment models- to estimate the economic impact of climate change and macro-economic models to assess the costs and effects of the transition to low-carbon energy systems for the economy as a whole.

• What were its findings?

The Stern Review is massive- on the scale of 700 pages long. Its key conclusions are:

• The benefits of strong, early action against climate change outweigh the costs of implementing the necessary changes.

Concretely: Reducing CO2 emissions to 450-550 ppm (parts per million) would cost 1% of GDP each year (by more recent estimates even more, but still insignificant compared to the costs of doing nothing)
Inaction could cost 20% of GDP each year.

• (Note, though, that 550 ppm emissions – double the number of pre-Industrial emissions -imply a global temperature increase of 3°C, way more than what is considered acceptable by climate science)

Stern therefore suggested that the cost of inaction would be far greater than the initial costs of making the necessary reductions to emissions, EARLY.
This was highly significant because it changed the perception of climate action from an economic burden to an economic benefit and ultimately an economic necessity

• The damages from climate change will accelerate as the world gets warmer-delaying action increases the cost of lowering emissions so immediate action is needed.
• The poorest countries and people will suffer most of the consequences, earlier on, although at first, they might have small positive effects for a few developed countries, in higher latitude regions (Russia, Canada, Scandinavia- short-term higher agricultural yield, lower heating costs)
• The transition to a low-carbon economy may pose challenges at first, but might ultimately provide opportunities for economic growth
• Economic growth is currently driving rises in emissions but maintaining a constant, lower level of greenhouse gas emissions in the atmosphere is feasible and even compatible with economic growth. With strong, deliberate policy choices, it is possible to ‘decarbonise’ both developed and developing economies on the scale required for climate stabilisation, while maintaining economic growth in both.
  • some suggest it is now too late for economic growth to be compatible with the reduction of emissions required
• Policy to reduce emissions should be based on three essential elements:

1. carbon pricing
2. technology policy (focusing on research and development, designing low-carbon technologies cheaper than the fossil fuel alternatives)
3. removal of barriers to behavioural change.  The carbon price must signal the social cost of our actions. It would discourage emissions, give an incentive to invest in new technologies to reduce carbon and remove barriers to action, transaction costs, and behavioural and organisational inertia

•  Adaptation policy is crucial for dealing with the unavoidable impacts of climate change, but it has been under-emphasised in many countries
• Curbing deforestation is a highly cost-effective way of reducing greenhouse gas emissions.  (Emissions from deforestation are estimated to represent 6-17% of global emissions). Policies on deforestation should be shaped and led by the nation where the particular forest stands. But those countries should receive strong help from the international community, which benefits from their actions to reduce deforestation.

 

• What is its legacy?

 
While there was much debate after the publication of the report and there still are diverging opinions (after all, a lot of the consequences are still unknown, unpredictable and hard to assess, especially from an economic point of view), The Stern Review did have an important impact.

• It opened the door for more projects of its kind, like the Risky Business Project, “The Stern Review for the U.S.” Basically, it encouraged economic conversation about the implications of climate change, urging policy change
• Like we said in the beginning, it redefined climate change as an economic issue, not just a scientific one and it was the first economic report to do so
• It opened up the debate about how we value the future, as opposed to mere short-term profit
• It changed the way research impact was understood, in terms of the need for more advanced technologies in order to reduce the negative impact on climate
• It outlined the importance of early action against climate change, also warning about the consequences of ignoring the problem.

Therefore, despite some critics calling the Stern Review too extreme and others too lenient in the way it views climate change consequences or actions needed, The Stern Review still remains an important piece that has opened up the opportunities for discussion and encouraged early policy change.

http://www.lse.ac.uk/GranthamInstitute/publication/the-economics-of-climate-change-the-stern-review/
http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/30_10_06_exec_sum.pdf
https://en.wikipedia.org/wiki/Stern_Review
 https://www.climatecentral.org/news/climate-economists-stern-review-20827