The Economics of Climate Change. The Stern Report One Year On

In this article Olivier Godard, a specialist in environmental issues, looks back at the Stern Report on the economics of climate change, which was commissioned by the British government and published at the fall 2006. Having first recalled the general background to the report with regard to global warming and the lively debate that it generated, Godard sets it in perspective. He starts by describing the overall methodology and the main ideas in the Stern Report: a strong warning (that without swift and decisive action to deal with the problem, the growth in human activities will cause serious, large-scale upheavals in this century and the next) coupled with an optimistic view (that nothing is inevitable provided that action is indeed swift, decisive and properly co-ordinated internationally, and the cost is relatively moderate). He puts figures to an evaluation of the damage to the environment suggested in various scenarios for the period up to 2200, as well as calculations showing that the feared climate change catastrophe is not unavoidable. He summarizes the policy recommendations offered in the Stern Report, emphasizing in passing that even the toughest policies cannot overcome all the problems. Godard goes on to discuss the key issue in the controversy that divides economists: what level to set the reference discount rate. He first describes the way this rate is calculated and then shows how the choices involved reflect above all the ethical trade-offs with regard to the treatment of future generations and how the hypotheses underlying the economic evaluations of the impacts of climate change are far from being as scientifically objective as they claim to be. The Stern Report, he concludes, will at least have had the merit of bringing greater transparency in this regard and, despite certain limitations, it will have demonstrated the urgent need for co-ordinated action at global level to tackle climate change.