Stern Review

Stern Review The Stern Review was a comprehensive report on the economics of climate change led by Nicholas Stern, Baron Stern of Brentford and produced for the Her Majesty's Treasury of the United Kingdom in 2006. It aimed to assess the risks, costs, and policy options associated with climate change and to inform decision-making by linking scientific evidence from bodies such as the Intergovernmental Panel on Climate Change with economic analysis used by institutions like the International Monetary Fund and the World Bank. The Review compared projected damages from unmitigated warming with costs of mitigation, influencing debates among policymakers in forums including the G8 and the United Nations Framework Convention on Climate Change.

Background and commissioning

The Review was commissioned by Gordon Brown, then Chancellor of the Exchequer in the United Kingdom government following concerns raised by prior scientific assessments from the Intergovernmental Panel on Climate Change and advocacy from figures such as Al Gore, whose film An Inconvenient Truth and the Nobel Peace Prize (shared by the IPCC and Gore) had elevated public discourse. Stern assembled a team drawn from academic institutions including London School of Economics, University of Cambridge, and University College London, and consulted international organizations such as the World Bank, International Monetary Fund, and OECD. The project engaged experts who had worked on reports for the European Commission, the United Nations Environment Programme, and national reviews by jurisdictions like Australia and Germany.

Key findings and conclusions

Stern concluded that unmanaged climate change posed substantial risks to global prosperity, projecting severe impacts on regions exemplified by Sub-Saharan Africa, South Asia, and small island states like Maldives. The Review estimated that business-as-usual pathways could lead to GDP losses comparable to those seen in major historical shocks such as the Great Depression or the World Wars for some countries, and it recommended immediate and sustained mitigation comparable to policy shifts seen after events like the Montreal Protocol. Stern argued that investing around 1% of global GDP annually could avoid much larger costs, and emphasized co-benefits that echoed findings in reports by the International Energy Agency, the European Environment Agency, and the Royal Society.

Economic methodology and assumptions

The Review applied integrated assessment models similar to those used by researchers at Resources for the Future, MIT, and the Stern team's academic collaborators, drawing on damage functions that referenced empirical studies from Nordhaus, Weitzman, and Tol. It used a relatively low pure time preference and near-zero rate for future generations, aligning ethically with frameworks discussed by philosophers such as John Rawls in debates mirrored by economists at Harvard University and University of Chicago. Stern incorporated risk aversion, catastrophic tail risks, and non-market impacts documented by the IPCC Fourth Assessment Report, and evaluated mitigation pathways involving low-carbon technologies promoted by the International Energy Agency, emissions trading systems like the European Union Emissions Trading System, and instruments advocated by the World Bank.

Reception and critique

The Review received mixed responses across academia, think tanks, and political actors. Supporters including Tony Blair and environmental NGOs such as Greenpeace and the World Wildlife Fund praised its urgency and ethical framing, while critics from economists at Yale University, University of California, Berkeley, and University of East Anglia challenged its discounting choices and treatment of uncertainty. Scholars such as William Nordhaus publicly disputed quantitative estimates, whereas others like Martin Weitzman highlighted the importance of tail risks that Stern emphasized. Commentaries appeared in outlets and institutions like the Financial Times, The Economist, Bank of England, and the Royal Society, and influenced debates within parties including the Conservative Party (UK), Labour Party (UK), and international groupings such as the G8 and AOSIS.

Influence and policy impact

The Review shaped policy discourse leading into the 2009 United Nations Climate Change Conference in Copenhagen and reinforced initiatives such as the expansion of the European Union Emissions Trading System and commitments under successive Kyoto Protocol mechanisms and their successors. It informed fiscal and regulatory approaches by institutions including the Bank of England, the European Commission, and national treasuries of countries like France, Germany, and China. The Stern framing contributed to the growth of carbon pricing mechanisms, investment in renewable sectors represented by companies and markets tracked by the International Renewable Energy Agency, and international finance instruments administered by the Green Climate Fund and the World Bank. Academics at London School of Economics and policy analysts at organizations like Chatham House continue to cite the Review in debates on mitigation, adaptation, and intergenerational equity.

Category:Climate change economics