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To: TimF who wrote (72551)	6/16/2008 6:11:42 PM
From: TimF	Respond to of 543184

The Stern report puts the climate problem in terms of dollars and cents Last year we saw one dismal weather record broken after the next. The seriousness of the climate problem was further underlined when the Stern Review on the Economics of Climate Change was published in October 2006. Economist Nicholas Stern believes that climate change will cost far more than previously thought. Av H. Asbjørn Aaheim The report was commissioned by British prime minister Tony Blair, and is called by the name of its lead author, Nicholas Stern. Stern is a very highly recognized British economist with experience from such distinguished institutes as the London School of Economics, the Massachusetts Institute of Technology, and Oxford University, as well as acting as chief economist at the World Bank. The Stern report claims that the costs of climate change are far greater than previously believed. Unless we do something drastic soon, the loss of welfare by year 2100 can reach up to 20 percent of the gross domestic product (GDP) compared to a future without climate change. Previous estimates projected a welfare loss of only 0.5–1.5 percent. (check!) It will cost 1–2 percent of the GDP to reduce emissions so that some of these changes can be prevented. In other words, while previous economic analyses only support a moderate investment to reduce emissions, the Stern report argues for truly drastic measures. Three reasons for higher costs Stern gives three reasons for why climate change will cost more than what other economists have estimated. First, it seems as though the changes in climate will be greater than previously supposed – both because the global mean temperature will increase more and because ecosystems appear to be more sensitive than previously thought. Second, many previous estimates have overlooked the substantial welfare losses connected to changes in so-called non-economic variables, such as environment and health. Third, the world’s poor will be harder hit than the rich, and it is argued – convincingly – that these losses should be given greater weight than is the case when we only look at average values. Like other reports of its kind, the Stern report emphasizes that the numbers are highly uncertain. Nevertheless, the results differ so much from what others have done that if they are true, then it is a very serious blow to traditional economic analyses. The question is really who is in the right ballpark: Stern or everyone else. Criticism of Stern Many economists assert that is Stern who is off base. Richard Tol, a highly cited economist, has pointed out that even though it is not easy to pinpoint specific errors in the report, it can nevertheless be criticized for drawing selectively from the literature. He finds examples where damage cost estimates are calculated without using available estimates of adaptation measures that can reduce the costs significantly. In other cases, findings show the strongest impacts and pick out the highest costs. When it comes to the consequences of climate change, the estimates in many cases also seem to build more on intuition than logic. The report concludes that northern countries can expect to benefit from moderate climate change because the conditions for agriculture will improve, without taking into account that agriculture is particularly expensive in these countries and constitutes only a miniscule part of the economy. Adaptation problems for poor countries remain equally large – despite the fact that high economic growth is expected in some of these countries, they will still be poor. This is, however, not a serious criticism, because knowledge about the impacts of climate change is incomplete. What’s worse is that the report more or less consistently uses average costs to evaluate emissions reductions. However, it is well known that marginal costs determine which measures should be implemented, and they can deviate considerably from average costs. In this area, our knowledge is far more complete. Emphasizes the next generation The most important reason for the major differences is, however, that the Stern report, in contrast to other studies, assumes that costs and revenue mean almost the same thing for welfare, regardless of when they are accrued. This is justified by saying that it is ethically indefensible to give greater weight to our own generation’s welfare than to the welfare of future generations, as is typical in economic analyses. It is easy to agree with this, but the truth is that this assumption is not about how to weight the welfare of the various generations. Rather, it is an expression of how long we can stand delaying consumption so that we can instead invest and consume more at a later time. When we, as in the Stern report, more or less choose to ignore impatience, it means then that it does not matter whether consumption takes place now, in 100 years, or in 200 years. This is a radical departure from observed behavior. Another well-known economist, Partha Dasgupta, points out that if we take seriously the Stern report’s assumption that the benefit of consumption is discounted by only 0.1 percent per year, then it will pay off to save 97.5 percent of our income... cicero.uio.no

To: TimF who wrote (72551)	6/16/2008 6:20:36 PM
From: spiral3	Respond to of 543184

The Stern report is rather controversial Yes, that is my understanding too. There are lots of different assumptions and viewpoints in the literature, some measure of wasted energy all round. I have looked into it a bit, enough to know that I'm not in a position to personally critique it. I could post a ton of rebuttals to the rebuttals against Stern. My sense is that this is not the place for that. I feel I've had my say and I'm not going to get bogged down in minutiae. I'm holding fire.