Stern on Climate Change: Act Now or Else


I think economic analysis should be a key part of how we seek action plans for Climate Change, and although I’m partial to what most economists suggest with respect to Climate Change mitigation spending – moderate to low mitigation spending until we know more about impacts and our ability to change things – I also respect the fact that … they could be wrong.

A prominent economist who suggests we must act now to avoid huge future costs is Sir Nicholas Stern who was commissioned by the UK Government to answer the most important question with regard to Climate Change.   That question is NOT “what’s up with the climate?” but rather “what’s up with what we are we going to do about it”?     

Here is a great executive summary of Stern’s view and by extension the official stance (I think) of the UK Government.      The key departure Stern makes from the more prevalent view of economist who study this relates to *discount rate*, which is  the interest rate used in determining the *present value* of future cash flows.   The gist of the discount issue relates to how we treat *current* cost and benefits vs *future* costs and benefits. 

In a nutshell, Stern argues that climate change can’t be treated with the same discounting assumptions we’d use in a business analysis, I think (not sure here), because the time spans are very long and the stakes are potentially very high.     This assumption is why in Stern’s model *acting now and acting big* is so important.

I’m still trying to digest the issues here, though intuitively I simply don’t understand why we should change the rules for Climate that we use so successfully in other economic analyses.