10 Years on, Climate Economists Reflect on Stern Review

Climate change is ultimately a problem of dollars and cents across generations.  That’s because the actions society takes today to address climate change — namely cutting carbon pollution — won’t provide immediate benefits.  Instead, those benefits will be reaped in the coming years and decades and even centuries in the form of fewer people dying from heat waves, cities not being submerged by rising seas, farmers dealing with reduced risk of megadroughts.

Weighing all these costs and benefits in terms that governments can create policies around and businesses can prepare for is no small task.  Yet 10 years ago, that’s the Stern Review, a 700-page behemoth of a report, did.

Commissioned by the British government and led by economist Nicholas Stern, the massive report was the first of its kind to quantify the costs to address climate change and its impact on the global economy vs. what would happen if the world continued emitting carbon pollution unchecked.

It found that cutting carbon emissions so that carbon dioxide peaked in the range of 450-550 parts per million would cost 1 percent of the GDP annually, but ignoring climate change could cause economic damage on the order of up to 20 percent of the GDP.  Translated into real world numbers, the Stern Review put a price of about $85 per ton of carbon pollution emitted today, well above the current rate used by the U.S. of $40 per ton.

Since the Stern Review’s publication, other economists have made estimates of what it would cost to address climate change, but the Stern Review still stands out as a seminal document similar to the Intergovernmental Panel on Climate Change reports on science.

With the 10-year anniversary coming up at the end of October, Climate Central reached out to a group of leading and up-and-coming climate economists dealing with the challenge of valuing climate action now and into the future.  Their answers are below, lightly edited for clarity and brevity.  It’s a stark finding — though one that has yet to inspire major action — that was both heralded as a breakthrough and hotly debated in the intervening decade.

What’s the legacy of the Stern Review?
How have its conclusions held up over time?

Andrew Steer, president of the World Resources Institute:  The legacy is exceedingly important.  Until then, economists didn’t really focus adequately on issues of climate change or at least they had a relatively naive review of things.  What the Stern Review did is by careful way of marshalling evidence of costs and benefits, it provided a massive leap forward in our understanding of the economics of climate change.

The conclusions have stayed correct but the messages would be much stronger if it were written today than they were then.  The case for action is much more clear today than it was back then.  That’s partly because technology has changed, making the transition to a low carbon future much more cost-effective.  Second, because we’re 10 years on, the problem has become more obvious.  Essentially, the costs of inaction have gone up and costs of action have come down a lot.

Kate Gordon, vice chair of climate and sustainable urbanization at the Paulson Institute: The Stern Review was critically important in moving the climate issue from one of science to one of economics.  It has inspired a huge amount of work afterward, including the Risky Business Project, which in its pilot phase was actually known as “the Stern Review for the U.S.”  So its legacy is one of opening the door to a sober economic conversation about the implications of climate change, which is critically important.  Its specific conclusions may be less useful as we move from climate diplomacy to the operational phase of climate mitigation, as those economic and workforce development strategies are profoundly local and must be done at a far more granular level than the Stern Review used.

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