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The Stern Review and the Economic Analysis of Climate Change
February 14, 2007
      
An RFF Seminar

On February 14, Resources for the Future hosted a special seminar on the economics of climate change featuring a discussion on the recently released Stern Review: The Economics of Climate Change. Compiled by Sir Nicholas Stern, head of the United Kingdom's Government Economics Service and adviser to the U.K. government on the economics of climate change and development, the Stern Review is the first major government-sponsored benefit-cost analysis of climate change.

The Stern Review concludes that "the benefits of strong, early action on climate change outweigh the costs." The report's central finding is that unmitigated climate change could cost an equivalent of 5-20 percent of per capita consumption over the long term, but the world would only have to bear a cost equal to about 1 percent of GDP annually to stabilize atmospheric concentrations of greenhouse gases at approximately 550 parts per million carbon equivalent. To achieve the emissions abatement necessary to meet this ambitious concentration goal, the report calls for the implementation of policies to put a price on greenhouse gas emissions (for example, through an emissions tax or cap-and-trade program), stimulate the development of new climate-friendly technologies, and remove barriers to behavioral change. This effort would likely require global greenhouse gas emissions to peak over the next 10-20 years and then decline up to 3 percent per year thereafter.

The main finding of the analysis has drawn considerable attention to this report. U.K. Prime Minister Tony Blair stated that it "will be seen as a landmark in the struggle against climate change." U.S. policymakers have also paid close attention to the report, as evidenced by the recent hearing on the Stern Review held by the Senate Committee on Energy and Natural Resources. Academic economists, many of whom have previously undertaken their own economic analyses of climate change, have weighed in with comments on the Stern team's methods and assumptions. Some have applauded the effort; others have leveled strong criticisms.

The seminar hosted by RFF provided a rare public opportunity in the United States for members of the Stern team and outside experts to discuss and answer questions about the methods and conclusions of the Stern Review and the economic analysis of climate change more generally. Alex Bowen, senior economic adviser to the Stern Review, provided an overview of the benefit-cost analysis undertaken in the report. Jake Jacoby, professor at the Massachusetts Institute of Technology's Sloan School of Management and co-director of the Joint Program on the Science and Policy of Global Change, and Joe Aldy, fellow at RFF, commented on the Stern Review, discussing the application of benefit-cost analysis in this report and the use of such analysis to inform policy design and implementation. The seminar closed with a panel discussion guided by audience questions.

 

 

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Introduction

Phil Sharp|  Link to Video
President
Resources for the Future

 

Link to video

Moderator: William A. Pizer| Link to Video 
Senior Fellow
Resources for the Future
 

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Billy Pizer is widely recognized for his research into the design of policies to address climate change risks caused by manmade emissions of greenhouse gases. His work assesses how various features of environmental policy in an economic context can influence a policy’s efficacy under different circumstances. These circumstances include uncertainty, technical advances, and changing costs of environmental regulation. In addition to his work at RFF, he is a senior economist at the National Commission on Energy Policy, where he provides analysis and expertise on environmental and energy security issues. A fellow at RFF since 1996, Pizer also has served as a senior economist at the Council of Economic Advisers in 2001–2002, where he worked on energy, environment, and climate change issues; been a visiting scholar at Stanford University’s Center for Environmental Science and Policy in 2000–2001; and taught at Johns Hopkins University from 1997 to 1999. He holds a B.A. in physics from University of North Carolina–Chapel Hill and an M.A. and Ph.D. in economics from Harvard University.

Alex Bowen | Link to VideoLink to presentation
Senior Economic Adviser
The Stern Review

Link to video

Alex Bowen was Senior Economic Adviser to the Stern Review from November 2005 to November 2006, on sabbatical from the Bank of England, where he is currently a senior policy fellow working on monetary policy issues. Bowen has served in a several roles there in both monetary policy and financial stability work. Prior to joining the bank, he worked on economic policy analysis in the United Kingdom’s National Economic Development Office after holding academic posts at Brunel University and the London School of Economics and Political Science. He has a B.A. in economics from Cambridge University and a Ph.D. in economics from Massachusetts Institute of Technology.

Henry (Jake) Jacoby | Link to VideoLink to presentation
Professor of Management and Economics
Massachusetts Institute of Technology

 

Link to video

An expert on global environmental issues, Jake Jacoby co-directs MIT’s Joint Program on the Science and Policy of Global Change. The program considers both the natural and social science aspects of global climate change, as well as the policy and management studies needed to support the development, negotiation, and implementation of a domestic and global response. Jacoby has made contributions to the study of policy and management in the areas of energy, natural resources, and environment, writing widely on these topics, including five books. His current research and teaching is focused on economic analysis of climate change and its integration with scientific and policy aspects of the issue. Public involvement has included Chairmanship of the Massachusetts Governor's Emergency Energy Technical Advisory Committee (1973–1974) and service on several committees and panels, including the Climatic Impact Committee of the National Academy of Sciences (1973–1975), the American Association for the Advancement of Science Panel on Climate and Water Resources (1986–1989), a National Research Council Panel on Metrics for Global Change Research (2004–205), and the Scientific Committee of the International Geosphere-Biosphere Program (2006–present). An undergraduate mechanical engineer at the University of Texas at Austin, he holds a Ph.D. in economics from Harvard University.

Joseph E. Aldy | Link to Video
Fellow
Resources for the Future

Link to video

                                        
Joe Aldy’s research addresses questions about climate change policy, mortality risk valuation, energy subsidies to low-income households, and energy policy. He has studied the design of international climate change policy architectures; the costs, effectiveness, and principles of emissions trading programs and other mitigation policies; and the relationship between economic development and greenhouse gas emissions. His research on mortality-risk valuation focuses on how individuals’ willingness to pay to reduce such risk varies over their lifetime. He has also evaluated how heating subsidies to low-income households can mitigate the effects of winter weather and energy price shocks on mortality among the elderly. From 1997 to 2000, Aldy served on the staff of the Council of Economic Advisers, where he was responsible for an array of environmental and resource issues, including climate change policy, air quality regulations, petroleum markets, electricity restructuring, hazardous waste policy, environmental issues in China, and sustainable development. He received a B.A. in water resources from Duke University, an M.E.M. from Duke’s Nicholas School of the Environment and Earth Sciences, and a Ph.D. in economics from Harvard University.

Alex Bowen | Link to VideoLink to presentation
Senior Economic Adviser
The Stern Review

Link to video

Q and A | Link to Video

 

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