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Nordhaus on the "Stern Review":

Publication of the Stern Review on the Economics of Climate Change appears to have had a significant impact on the climate policy debate. Yet there has been significant criticism of some of the report's assumptions and conclusions (as I noted here).

Among the more recent critiques is this assessment by Yale's William Nordhaus (link via Prometheus). Nordaus notes that the Stern Review reached significantly different conclusions from most prior economic assessments, particularly with regard to the optimal rate and timing of emission reductions. Nordhaus concludes in his "summary verdict" of the Review:

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.
For a more sympathetic assessment of the Stern Review, see this CT post.

UPDATE: See also Richard Tol's comments on Nordhaus and Stern here.

bob montgomery:
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...

Shocking.
11.22.2006 1:22pm
AppSocRes (mail):
The science doesn't hold up very well either. Among other things, Stern apparently has had some trouble distinguishing between heat and temperature in his less than accurate paraphrases of "scientific" research.
11.22.2006 2:08pm
Eli Rabett (www):
Nordhaus was quite good, but you should really not truncate what he said where you did. Nordhaus gets to the nub of Stern here:

"...The social discount rate is a parameter that measures the importance of the welfare of future generations relative to the present. It is calculated in percent per year, like an interest rate, but refers to the discount in future "utility" or welfare, not future goods or dollars. A zero social discount rate means that future generations into the indefinite future are treated equally with present generations; a positive social discount rate means that the welfares of future generations are reduced or "discounted" compared to nearer generations."

Philosophers and economists have conducted vigorous debates about how to apply social discount rates in areas as diverse as economic growth, climate change, energy policy, nuclear waste, major infrastructure programs such as levees, and reparations for slavery."

Stern EXPLICITLY states in several places that it would be unethical to value future generations more than the current one. Nordhaus points out that this is not a slam bang case in the literature, but a source of contention (what has the future ever done for me?)

You might also point out that social discount rates are always assumptions.
11.22.2006 8:04pm
MnZ (mail):
You might also point out that social discount rates are always assumptions.


True, but there are unreasonable and reasonable assumptions. A zero or negative social discount rate are unreasonable for numerous reasons. Stern's assumptions border on unreasonable since they put the discount rate very close to zero.

The report is actually a bit odd since it seems to go to great lengths explaining why discount rates should be greater than zero. Then, it proceeds to choose a discount rate that is only slightly great than zero. My more cynical side wonders if writers really wanted to use a zero or negative discount rate, but realized that this would be an unreasonable assumption.
11.23.2006 3:30am
professays (mail):
I don't understand how an economist can be an expert in climate change.
11.23.2006 5:02am
MnZ (mail):
I don't understand how an economist can be an expert in climate change.


They can't...just as climatologists cannot be experts on economics and public policy.
11.23.2006 1:38pm
James Lindgren (mail):
Tyler Cowan has a brilliant paper someplace on the web that discusses the proper discount rate for environmental matters.

He concludes that a discount rate of zero is not necessarily wrong.
11.23.2006 2:09pm
Eli Rabett (www):
The Stern Report, long as it is, is only a summary. Stern also provides a series of commissioned position papers which are the background for his choices on many of the issues.
11.23.2006 2:51pm