The Stern Review is four years old but remains a vital tool for Copenhagen’s policy-makers. It shows them exactly what not to do, says Robert O. Mendelsohn
Across the West, we hear the increasingly shrill prophesies that climate change will destroy the earth. The solution proposed is to adopt a new world order with regulations that will dramatically change the global economy. Against this backdrop, world leaders will meet in Copenhagen in a few days’ time to discuss whether such upheaval can be justified. And it is a subject on which economists have plenty to say.
Simply put, the costs of ‘abatement’ — the carbon reduction plans being advocated in Britain and many other countries — must be weighed up against the benefits. For example, one cost is that of more expensive, ‘greener’ energy forms — and the cost of economic potential forfeited by not having as many choices of energy in the future. The benefit, of course, is the mitigation of damage that might otherwise come from climate change.The goal of society should be to find the greatest net benefit.
We run into problems when climate change advocates focus on only one side of the equation: how to cut the potential damage by the greatest amount, no matter what the cost. Such an approach is not balanced.
Perhaps the best known of the numerous attempts to assess the economics of climate change is the report by Lord Stern four years ago at the request of the then Prime Minister Tony Blair. For many, including Lord Stern himself, the report represents a coherent justification for an aggressive climate change policy which was (and remains) the policy of the British government.
But is it really a suitable benchmark for our approach to climate change policy? It might not be.
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