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.
