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Report n° 7: The Stern review

Preamble

A deliberate intermingling of science and geopolitics

The media success of the Stern review is related to the fact that its disquieting message on the damage caused by climate change comes not from environmentalists but from a former World Bank Chief economist commissioned by the UK Government.
If implications for decision-makers are to be understood therefore, there can be no separate analysis of its content and context :

  • The Stern review should be understood as UK-USA geopolitical posturing.
    Tony Blair sees climate change as a threat on a par with terrorism for global security and imposed the following wording to the Gleneagles 2005 G8 summit: "We will act with resolve and urgency to meet our shared and multiple objectives of reducing GHGs emissions, improving the global environment, enhancing energy security and cutting air pollution in conjunction with our vigorous efforts to reduce poverty".

  • The timing of the report's publication was chosen to influence the fourth report of the Intergovernmental Panel on Climate Change (IPCC), at the cost of scientific "risk-taking":
    the few published economic studies on the overall cost of climate change had surmised losses of 1% to 2% (Nordhaus, 2006), Tol (2002a, b) or Mendelsohn et al. (2004), i.e. a range of figures so low that they surprised IPCC Group II non-economist members.
    The fact that Stern put his reputation as a first-rate economist behind very high figures somewhat changed the situation at the time of drafting the Group II Executive Summary.

  • This mixture of science and politics produced strong reactions. Apart from the usual people involved in the climate debate, first-rate economists such as Martin Weitzman or Partha Dasgupta intervened. The most critical accuse Stern either of issuing a political report or of basing a sound case (speed is of the essence) on faulty arguments (we know how to predict damage sufficiently to quantify them). It is interesting however to note that the general trend is to say that, however criticizable, Stern can be credited with making explicit the reasons for an alternative policy to that proposed by Bush and that his position is supported by four Nobel Prize for Economic Science Laureates, and not the least among them (Robert Solow, James Mirrless, Amartya Sen, Joseph Stiglitz.

  • Finally, it is symptomatic that controversy focused on damage assessment although it represents only 20% of the report. Yet, the issues relating to the cost of preventive decarbonisation and to the principles of international coordination of climate policies are just as important.

  • We will rectify that imbalance hereafter by discussing the Stern review both on the issue of damage and of decarbonisation policies, after which we will come to the strategic consequences to be drawn for economic actors.