1. Comments on the Stern Review David Maddison University of Birmingham

2. The Stern Review The 575 page Stern Review on the Economics of Climate Change was published on the 30 th October The Review was embraced by political leaders of all the main parties but shortly afterwards criticised by several leading economists

3. What does it say? Impact of climate change equivalent to a 5-20% cut in consumption now and forever Recommends stabilising atmospheric concentrations at 550ppm CO 2 equivalent Marginal damage costs equal to $314/tC Emissions can be stabilised at 1% of GDP

4. Why the big difference? Did earlier economic analyses neglected important aspects? Has the underlying scientific / economic literature has moved on? Does the Stern Review contains errors / points of contention?

5. For the avoidance of doubt My critique deals with chapters 4 to 13 Some of my criticisms would point to greater action than that recommended by Stern There have been several postscripts since the Stern Review was released My own thinking on the Stern Review has also evolved through time

6. Damage costs Uncertainty and risk aversion are at the heart of Stern’s analysis and climate assumptions are updated The Review uses the PAGE2002 Integrated Assessment Model to calculate damage costs Use of the A2 emissions scenario is unexplained

7. Damage costs Assumed damage cost estimates for catastrophic impacts Damage cost estimates are all pre 2001 The Review appears to favour the use of equity weights without reminding the reader about arguments against their use

8. Potentially misleading? Stern says: “The most severe climate impacts… reduce consumption to such low levels” and “Climate change causes a reduction in consumption of 5-20% now and forever” (italics added) The most severe climate impacts involve a reduction in global GDP per capita of 35.2% by 2200 but according to Stern GDP per capita will still be 8 times higher

9. Abatement costs Abatement cost estimates based on consensus estimates Have the external costs of renewable energy been everywhere included? Argues in favour of energy efficiency as a means to reduce emissions Assumes that halting tropical deforestation entails an opportunity cost

10. Optimal control Stern acknowledges the role of benefit cost analysis Does not locate the optimal control only a strategy for which the benefits outweigh the costs Accounts for uncertainty but fails to acknowledge the impact that future learning has on near term decisions

11. Discounting the future There are two reasons for discounting in economics: –Pure time impatience –Declining marginal utility combined with assumed economic growth Previous economic analyses assumed a constant discount rate for evaluating projects to slow climate change

12. Discounting the future Stern ignores impatience resulting in a low discount rate and treats economic growth as endogenous The chosen discount rate does not appear to rationalise current economic behaviour Stern’s choice of a single discount rate reduces what is essentially an ethical decision to a pure economic parameter

13. Conclusions The most important thing about the Stern Review was that it was commissioned in the first place The Review would have benefited from more extensive independent peer review It is possible to believe that climate change is a serious threat and yet not wholly subscribe to the economics of the Stern Review