William Nordhaus on The Stern Report
November 22nd, 2006Posted by: Roger Pielke, Jr.
Here is a link to Willian Norhaus’ review of the The Stern Report (PDF). It is worth reading in full. Prof. Nordhaus provides the following “summary verdict.”
How much and how fast should the globe reduce greenhouse-gas emissions? How should nations balance the costs of the reductions against the damages and dangers of climate change? The Stern Review answers these questions clearly and unambiguously: we need urgent, sharp, and immediate reductions in greenhouse-gas emissions.
I am reminded here of President Harry Truman’s complaint that his economists would always say, on the one hand this and on the other hand that. He wanted a one-handed economist. The Stern Review is a Prime Minister’s dream come true. It provides decisive and compelling answers instead of the dreaded conjectures, contingencies, and qualifications.
However, a closer look reveals that there is indeed another hand to these answers. The radical revision of the economics of climate change proposed by the Review does not arise from any new economics, science, or modeling. Rather, it depends decisively on the assumption of a near-zero social discount rate. The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today’s market place. So the central questions about global-warming policy – how much, how fast, and how costly – remain open. The Review informs but does not answer these fundamental questions.