Stern Review

Note that this report came out in 2006.  It was reading for my class, but a pretty important (and controversial) body of work.  I'll try to be brief in going over some of the highlights and criticisms.

I think most of you know the basics of climate science, so I will not harp on that nor try to convince anyone of the reality of climate change.  According to the Stern Report, there is between a 77% chance and 99% chance of 2 degree warming.  Just recently, Stern has said that the chances of limiting our losses to only 2 degrees are much lower; we should prepare for closer to 5 degrees Celsius warming.  Here are some of the economic costs mentioned:

• Melting glaciers and rising sea levels will lead to greatly increased flooding (200 million permanently displaced by mid-century!)
• Food production will go down due to warming, leading to increased malnutrition
• Diseases like malaria will become more prevalent
• Possible mass extinction, destruction of ecosystems (including hurting fishing)
• Possible collapse of ice sheets

One tragic consequence is that climate change is going to affect poor people more.  The very poor depend more on farming and cannot afford to adapt to rising temperatures. This means that climate change will exacerbate global inequality.

The Stern Report predicts future GDP losses of 0-3% with less than 2 degree warming and 5-10% with 5-6 degree warming.  It warns that we need to take into account potentially catastrophic warming that will completely devastate the planet (keep this in mind for a later post).  Some would say that the projected impact is overblown.  Stern takes it further by stating that "estimates, based on modelling a limited increase in this responsiveness, indicate that the potential scale of the climate response could increase the cost of climate change on the BAU path from 5% to 7% of global consumption, or from 11% to 14% if the non-market impacts described above are included." This is taken even further to 20% if inequality is included.  

A second major contentious point lies in Stern's estimate of the cost of drastic emission reduction.  He states that in order to stabilize carbon dioxide at 550 ppm, GHG emissions would have to be 25% lower than today by 2050 (and 70% lower to achieve 450 ppm).  There are four ways of reducing emissions: reducing demand, increasing carbon sinks (reforestation instead of deforestation), increasing energy efficiency, and increasing clean energy.  Stern estimates that only 1% more of GDP must be spent on emissions-reduction in order to stabilize at 550 ppm.  He states that "[t\he power sector around the world will have to be least 60%, and perhaps as much as 75%, decarbonized by 2050 to stabilize at or below 550 ppm CO2e."  Even though solar energy is getting much cheaper, I don't think that it will be easy to make a fairly rapid transition to a mostly zero carbon economy.  Unfortunately, a resonating note is a warning as to the impact of inaction. The longer we wait to do something, the more it will cost us.  Stern mentions benefits to technological change and lower emissions, including energy security and health benefits due to likely lower air pollution.

Stern estimates the 2006 social cost of carbon to be $85 per ton of carbon dioxide (or about $300 per ton of carbon), far more than most economic literature.  Famed environmental economist William Nordhaus puts the cost of carbon at closer to $30-$40 per ton, about 1/10th of Stern's estimate.  Stern argues that uncertainty means that we should use a higher carbon price than the estimated average due to uncertainty in risks.  

Stern's basic policy proposals are fairly noncontroversial among economists: "Policy to reduce emissions should be based on three essential elements: carbon pricing, technology policy, and removal of barriers to behavioral change."  Stern recommends a massive increase in incentives for innovation, 2 to 5 times the ~$30 billion spent in 2006.  He appears to endorse efficiency standards and labeling as effective tools for behavioral change.  An important section is given to the need for adaptation, as some impacts are unavoidable.  We need to plan for climate warning (unlike North Carolina, which just outlawed sea level rise) and develop in a sustainable manner.

The rest of the report focuses mostly on international cooperation.  We need a global carbon market, global regulations rather than varying regulations by country, aid to developing countries for mitigation and adaptation, and removal of trade barriers to low carbon technology.  (Oops, Obama imposed a tariff on Chinese solar panels just last year.  Another example of the fruitless pursuit of preserving American jobs at the expense of the global economy and the environment).