COMMENTARY
The economics of climate change impacts  la Stern: Novel and
nuanced or rhetorically restricted?
Clive L. Spash
CSIRO, Sustainable Ecosystems Division, GPO Box 284, Canberra, ACT 2601, Australia
A R T I C L E I N F O A B S T R A C T
Article history:
Received 21 February 2007
Received in revised form
31 May 2007
Accepted 31 May 2007
The Stern report conducts an estimation of Greenhouse Gas control costs weighed against the
benefits of avoiding damages at the global scale. As I show, Stern and colleagues are aware of
the limits to CBA, although they chose to ignore the considerable literature on the subject, the
many contributions by ecological economists, and especially work specific to the enhanced
Greenhouse Effect. Various problems are raised or mentioned in the report including: strong
uncertainty, incommensurability, plural values, non-utilitarian ethics, rights, distributional
inequity, poverty, and treatment of future generations. How then can this report,
acknowledging so many of those aspects of climate change that render CBA an unsuitable
tool for generating policy recommendations, go ahead to conduct a global CBA and make policy
recommendations? I explain how issues are suppressed and sidelined in a careful and
methodical manner, with the pretence they have been addressed by `state of the art' solutions.
Meanwhile, the authors maintain allegiance to an economic orthodoxy which perpetuates the
dominant political myth that traditional economic growth can be both sustained and answer
all our problems. Besides perpetuating myths, this diverts attention away from alternative
approaches, away from ethical debates over harming the innocent, the poor and future
generations, and away from the fundamental changes needed to tackle the very real and
serious problems current economic systems pose for environmental systems.
Crown Copyright  2007 Published by Elsevier B.V. All rights reserved.
Keywords:
Enhanced Greenhouse Effect
Cost­benefit analysis
Environmental values
Ethics
1. Introduction
"Those who reject theory for pragmatism are liable to find
themselves unwitting adherents of bad theory." (Loasby, 1976: 21).
The report by Stern and colleagues, hereafter Stern plural1
, is
claimedtobeanin-depthreviewofthecurrentstateofknowledge
about climate change economics (Stern, 2006: 38). Rather than an
independent review, this report was commissioned by the UK
Government,andlaunched,30thOctober2006,ataninternational
press conference attended by the Prime Minister and Treasurer. A
report led by an ex-Chief Economist of the World Bank, with
publicised backing from an elite of economists, including various
Nobel award winners,2
would suggest a rigorous piece of work.
The key conclusion, and international headliner, states:
"Using the results from formal economic models, the Review
estimates that if we don't act, the overall costs and risks of
E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
E-mail address: clive.spash@csiro.au.
1
There are 22 people named as "the team" besides Stern himself (Stern, 2006: ii) although people refer to the report as if written by Stern
alone. I therefore use Stern as a plural to cover all authors and for brevity i.e., read as Stern et al.
2
At the Ninth ISEE Conference, New Delhi, 2006, Amartya Sen came to the defence of the Stern report on grounds of it being a costeffectiveness
study, contrary to the fact that control benefits are a major focus (Chapters 2­6). Sen also took the pragmatists position in his
advocacy, even though this approach contradicts his own arguments concerning freedom and capabilities, and critiques of welfarism.
available at www.sciencedirect.com
www.elsevier.com/locate/ecolecon
0921-8009/$ - see front matter. Crown Copyright  2007 Published by Elsevier B.V. All rights reserved.
doi:10.1016/j.ecolecon.2007.05.017
climate change will be equivalent to losing at least 5% of
global GDP each year, now and forever. If a wider range of
risks and impacts is taken into account, the estimates of
damage could rise to 20% of GDP or more. In contrast, the
costs of action ­ reducing greenhouse gas emissions to avoid
the worst impacts of climate change ­ can be limited to
around 1% of global GDP each year." (Stern, 2006: vi).
However, that precise GDP numbers on climate change
control costs and benefits may be precisely wrong has been a
subject ofprevious commentary inEcologicalEconomics (Funtowicz
and Ravetz, 1994). Perhaps the much quoted 20% (like figures
produced by Nordhaus) "... is one of those `magic numbers'
designed to produce confidence in the existence of a hard core of
objective fact deep inside the mass of intuitive fuzz." (Funtowicz
and Ravetz, 1994: 201). So is this report substantively novel?
The overall picture is identical to that drawn 25 years ago
(d'Arge et al., 1982); that is, possible slight initial gains and
consistently rising damages. Some 15 years ago Cline (1992)
producedaglobalcost­benefitanalysis(CBA)whichgaveacentral
estimate of damages reaching 6% of GDP with a 10 °C warming,
and 20% of GDP lost under a pessimistic scenario. He showed
that, even with a 5% discount rate, incorporating only a small
probability ofcatastrophe within sucheconomic models is all that
is required to justify `aggressive' action (Cline, 1992: 6). This
literature is ignored by Stern3
(as indeed it has been by those
opposing emission controls)4
while economists calculating small,
or negative, control benefits and large control costs are praised,
e.g., Mendelssohn, Nordhaus and Tol. Stern will get little thanks
from these authors for this praise, because they are also cited as
having failed to account for the latest science, treated risk and
uncertainty inappropriately, underestimated optimal mitigation,
used unsuitable methods, and neglected future generations
(Stern, 2006: 298). Also, just as Nordhaus attacked Cline (see
Spash, 2002: 185­188), Stern must expect criticism from mainstream
economists for raising ethical concerns, especially with
regard to that favourite economists' red herring, discounting.
Indeed, divergence from economic orthodoxy seems to be driving
the results with the report claiming novelty in the treatment of
future generations, distributional inequity, and uncertainty.
The report has therefore been taken as a clarion call, by those
supporting Greenhouse Gas (GHG) control, stimulating public
debate and international reaction. However, as I will show, the
appearance of an heterodox approach is highly misleading and
Stern mostly pay lip service to the problems mentioned. Being
pragmatic, ecological economists who realise this may keep
quiet or mutter qualms in academic corridors. They may see
climate change as a perfect moral storm (Gardiner, 2006), and
agree with Singer (2006: 422) that when escaping such a storm
"the motivation isn't as important as the outcome." The fact
that Stern conduct a global CBA regardless of all theoretical
limitations and ethical concerns might then be regarded as less
important than their call for mitigation. Those ecological
economists who have been placing large numbers on global
ecosystem services may be comforted to find other environmental
pragmatists arguing that this is the way in which
environmental problems should be articulated, i.e. as investment
opportunities set in a market place. The warning by Brian
Loasby, cited above, then seems appropriate.
In what follows I detail the strengths and weaknesses behind
the headline cost­benefit figures. In the next section I show how
Stern raise the issues of catastrophic and extreme events, irreversibility,
vulnerability of the poor to damages, risk and uncertainty,
ethical concerns, and incommensurability. This is
followed by an explanation of how each of these issues is in fact
treated in a manner which reinterprets them into more simplistic
alternatives to fit within orthodox economic methods. In so doing
I expose some of the underlying value judgements made by Stern.
This establishes what has been done by Stern but not why it was
done. I therefore proceed to reflect upon the context and motivation
for producing such a document framed in terms of GDP
growth. This emphasises the problems facing a society which
focuses upon increasing consumption and production as the
raison d'tre for life. I close with some brief concluding remarks.
2. Strengths
"Now even those mainstream economists who engage in debate
on the environment find themselves adopting the rhetoric of an
ecologically sensitive approach. In spite of their efforts to reach
orthodox conclusions, their very language reflects how they are
forced to recognize and cope with the new problems of economics
in an ecological context." (Funtowicz and Ravetz, 1994: 199).
Anyone contemplating the future projections for human
induced climate change knows that the prognosisis bad, and can
only get worse, as long as we humans continue to emit
substantial GHGs. There are a whole series of potentially
catastrophic events. The poor and least able to adapt will
obviously suffer worst. On these points Stern are clear and
repeat the general agreement, and concern, amongst all those
demanding serious mitigation.
The emphasis on catastrophic and extreme events is something
the IPCC process of consensus report writing, and its
inherently conservative scientific and political approach, has
downplayed. A move, away from a sole focus upon average
temperature rises, towards concern for the changing frequency
of climatic factors and their temporal and spatial distribution is
also overdue (Spash, 2002: 98­106). Extreme climatic events,
such as hurricanes, floods and droughts already result in major
damages, e.g., Hurricane Katrina 1.2% GDP in USA (Stern, 2006:
132).5
The insurance industry is rightly concerned.6
Stern also
3
One of the co-authors informed me that a reference to Cline
would, in light of my comments, appear in an appendix upon
hard copy publication.
4
MacCracken (2006: 386­387) notes the selective use of industry
funded economic model results by the US President in withdrawing
from the Kyoto Protocol.
5
As noted later disasters can also contribute to GDP increases.
For example, hurricanes can lead to booms in the construction
sector. This says more about the failings of GDP as a measure of
overall welfare and well-being than the impacts of such events.
6
While the fear is of large payouts the sector may also profit, at
least in the short term, due to an increase in the number of
policies taken out and by being able to justify higher premiums.
707E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
highlight the potential for some unique irreversible disasters
e.g., disruption of the North Atlantic ocean circulation, and
melting of the West Antarctic and Greenland ice sheets.
Three chapters (3, 4 and 5) explain the dangers to industrially
developed and developing countries in physical and
monetary terms. These are speculative and dependent on four
scenarios. Drawing precise inferences is notoriously difficult
and various monetary numbers are based on a variety of ad
hoc assumptions, as with all such previous work. However,
the overall point is clear, that damages rise without GHG
control, millions will be affected in the rather too near future,
and billions are vulnerable the longer the delay.
Stern also join the chorus of those pointing out the
vulnerability of the poor to climate change and their limited
ability to adapt. As Chapter 4 notes: "Strong and early mitigation
is the only way to avoid some of the more severe impacts that
could occur in the second half of this century." (Stern, 2006: 92).
Stimulation of conflict, violence and wars is a noted potential
(Stern, 2006: 136­137), rather reminiscent of Meadows et al. (1972).
In Chapter 6, past economic modelling is criticised for
having failed to address adequately extreme events, a full
range of impacts, distributional issues and uncertainty.
"Above all, they carry out cost­benefit analysis appropriate
for the appraisal of small projects, but we have argued in
Chapter 2 that this method is not suitable for the appraisal
of global climate change policy, because of the very large
uncertainties faced. As a result, these studies underestimate
the risks associated with large amounts of
warming. Neither does any of these studies place much
weight on benefits and costs accruing to future generations,
as a consequence of their ethical choices about how
to discount future consumption." (Stern, 2006: 298).
Stern incorporate uncertainty as subjective probability distributions,
produced by Monte Carlosimulation. A 5% loss of GDP
is taken as the baseline, compared to 0­3% under past models,
for a 2­3 °C average global temperature rise. Monetisation of
non-market benefits of health and environment add a further
6% loss, feedback mechanisms 2­3%, and equity weighting 6%.
In producing these figures the study recognises that there are
large uncertainties, gaps in knowledge, models are merely
illustrative and that the model results: "should be treated with
great circumspection. There is a danger that, because they are
quantitative, they will be taken too literally. They should not be."
Yet, despite this the authors believe that "if the model is to
quantify the full range of effects, it must place monetary values
on health and the environment, which is conceptually, ethically
and empirically difficult." (Stern, 2006: 144).
Ethical issues are raised as a central concern (Chapter 2).
Stern appear set to make the matter a high priority, stating: "it
is not possible to provide a coherent and serious account of the
economics of climate change without close attention to the
ethics underlying economic policy raised by the challenges of
climate change" (Stern, 2006: 38). Under "the ethics of
adaptation" rich countries are named as responsible for
supporting the poor, due to having generated climate change
via past consumption and growth (Stern, 2006: 37). Furthermore,
they should cover the majority of initial control costs.
This is a clear assignment of liability, contrary to the standard
economic analysis of climate change (Toman, 2006: 373). Pure
time discounting is rejected as unethical, although reintroduced
(as discussed below). Income inequity is argued to need
weighting, via a social welfare function, to balance the
position of the poor versus the rich. Incommensurability also
seems to be accepted, as Stern state:
"Economists have developed a range of techniques for
calculating prices and costing non-market impacts, but the
resulting estimates are problematic in terms of concept,
ethical framework, and practicalities. Many would argue
that it is better to present costs in human lives and
environmental quality side-by-side with income and
consumption, rather than try to summarise them in
monetary terms. That is indeed the approach taken across
most of the Review." (Stern, 2006: 145);
and follow later with,
"...we have conceptual, ethical and practical reservations
about how non-market impacts should be included,
although there is no doubt they are important." (Stern,
2006: 164)
All this would seem to concur with Toman (2006: 366) who
notes: "Neither science in general nor economics in particular
can resolve the fundamentally moral issues posed by climate
change."
3. Weaknesses and orthodox conformity
"Economics has traditionally been able to maintain its credibility
by relegating uncertainties in knowledge and complexities in
ethics firmly to the sidelines." (Funtowicz and Ravetz, 1994:
197)
This apparent pluralism and recognition of multiple incomparable
criteria is not the approach emphasised in summaries,
conclusions or the launch speech. Instead Stern concentrate
there upon aggregate changes in GDP taken from Chapter 6. At
one point Stern seem to reject aggregation of "mounting risk of
serious harm to economies" stating that, unlike previous
bottom-up studies, they see no necessity "to add these up
formally into a single monetary aggregate to come to a
judgement that human induced climate change could ultimately
be extremely costly" (Stern, 2006: 285). However, they go on to
employ a model which involves "considerable simplification" to
achieve "quantitative implications" in a preference utilitarian
framework where costs and benefits are measured as changes in
consumption. Despite their criticisms of previous work, the
fundamental methodology is noted to be the same (Stern, 2006:
304), and shares "many of the limitations of other formal
models" (Stern, 2006: 153). "Specifically, it yields a probability
distribution of future income under climate change, where
climate-driven damage and the cost of adapting to climate
change are subtracted from a baseline GDP growth projection."
(Stern, 2006: 153).
708 E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
There are some clear value judgements behind the report and
most strongly thateconomic growth isessential and will increase
welfare. For example, the analysis models reduction of poverty
and child mortality as driven solely by GDP growth. Relegated to a
footnote is the explanation that other factors such as income
distribution are assumed constant (Stern, 2006: 108). This just
pre-loads the results to favour a pro-growth strategy in which
GHG control is subsumed (Stern, 2006: viii). That GDP growth is
historically highly correlated with energy use (Kümmel, 1989),
and so GHG emissions, is apparently unproblematic.7
Underlying this approach is an archaic model of the social
costs of GHGs. Stern treat the whole problem as a simple
externality with reference to Pigou (1912, 1920) without any
reflection on the critical literature of the intervening 90 years.
As Kapp (1978) explained, at some length, the problem lies
with the whole economic process of business enterprise not
some simple bilateral pollution problem which is a minor
aberration of an otherwise perfect market system. Every
product in the market place has embodied energy, is related
to GHG emissions, and therefore has the `wrong' price. Stern
are totally contradictory here, noting and characterising the
all pervasive nature of the problem and then using such a
simplistic, abstract and misleading theoretical construct.
Similarly, the review of past CBA work is extremely thin and
fails to reference any of the more critical literature in the area
(e.g., Ayres and Walters, 1991; Daily et al., 1991; Funtowicz and
Ravetz, 1994; Ekins, 1995; Spash, 1996; 2002; Toman, 2006). This
is particularly worrisome because Stern rely on this past CBA
work to cite, almost as a fact, that 2­3 °C increases may be a
positive outcome! Lack of consistency between economic
studies is mentioned in passing, but not discussed as a major
problem. Convergence of past studies on 1.5% to 2.0% GDP
damages appears as a sign of validity (Stern, 2006: 146). Actually
such convergence is rather meaningless. For example, there is
no agreement between studies on the scenarios used or
categories of damage, let alone whether damages in the same
sector of the same economy are positive or negative (Spash,
2002: 192­196; 2007a). This is a clear indicator of the analysts' ad
hoc assumptions and need to make arbitrary choices in the face
of strong uncertainty (Funtowicz and Ravetz, 1994).
Stern (2006: 33­34) do note the Keynesian differentiation
between weak and strong uncertainty.8
One approach to
complexity and strong uncertainty is scenario analysis.
Thus, the forty scenarios which informed the IPCC work
under the third assessment report were explicitly stated to be
"equally valid with no assigned probabilities of occurrence"
(Nakicenovic et al., 2000: 4). Stern (2006: 61) rely upon work by
Parry and the UK's Hadley Centre, to draw very specific
inferences from just four scenarios. Stern then employ
expected utility modelling, which is know to be an inadequate
representations of human behaviour e.g., assuming away loss
aversion (Perrings, 2003). Subjective probability density functions
then give precise computer generated outcomes. This
belies the fact that prices cannot be predicted by economists
with such accuracy over short time horizons let alone over
200 years, and that climate change is endogenous to economic
production systems so causing all prices to change with every
scenario. Comparative statistics, shifting from one equilibrium
to another, conceal complex processes of change. Thus
Stern manage to convert unknown and unknowable futures
into events with known probabilities, and miraculously strong
uncertainty becomes weak uncertainty.
In Chapter 3, the report is keen to emphasise that, unlike
others, thresholdsand extremeevents aretaken into account. In
Chapter 6, catastrophic impacts are modelled as a GDP loss
event of known low probability with a positive and increasing
risk. Stern (2006: 153) state: "When global mean temperature
rises to high levels (an average of 5 °C above pre-industrial
levels), the chance of large losses in regional GDP in the range of
5­20% begins to appear. This chance increases by an average of
10% per °C rise in global mean temperature beyond 5 °C." There
is a finite probability of the threshold, at which catastrophic loss
of GDP starts, being as low as 2 °C. However, these assumptions
mean that "moderate" warming of 2­3 °C appears acceptable,
while Stern fail to point out that during the last 10,000 years, the
Holocene, the mean temperature of the Northern Hemisphere
varied by no more than 2 °C (Gates, 1983). Lenton et al. (2006: 20)
use modelling to simulate climate behaviour over the last
126,000 years and find annual average surface temperature
varied no more that 2.1 °C globally, or 2.8 °C and 1.5 °C for the
Northern and Southern Hemispheres respectively.
As with Nordhaus, the future no longer threatens irreversible
surprise disasters, but rather such `catastrophes' are now
known bounded threshold events measured as reduced
consumption growth. Catastrophes are by their nature surrounded
in unknowns rather than fitting within normal
probability density functions. Any rational person would do
their utmost to avoid those being described by scientists under
the enhanced Greenhouse Effect. The appropriate response is
precaution (Perrings, 2003), but this is excluded by the
economic modelling employed.
Stern also make much of the ethical basis for decisions on
climate change being important, but there is no breadth or
depth in argument or literature. Instead various moral
theories are stated to collapse into concern for three objects
of desire: health, environment and income/consumption
(Stern, 2006: 145). These objects are assumed commensurable
(Stern, 2006: 30­31). So, more consumption makes everything
better, assuaging ethical concerns. Thus displacement of
people in developing countries is priced at three times per
capita income (Stern, 2006: 134). Why? How has someone
decided this? What do we do about the fact that the poor sell
cheaply (Martinez-Alier, 2002), and that millions live on $2 a
day or less? Is a couple of thousand dollars meant to
compensate forced relocation?9
Such ethical questions are
answered implicitly. Similarly, there is a need to specify the
overall (social) utility function and its implicit rules of
distribution, but such technical issues are duly relegated to
appendices. That selecting an intergenerational objective
function requires a moral framework, and these vary, even
within a utilitarian approach (Spash, 1993), goes unremarked.
7
I will return to problems with this pro-growth stance in the
next section.
8
For more detail on weak and strong uncertainty in the context
of the enhanced Greenhouse Effect see Chapters 4 and 5,
respectively, of Spash (2002).
9
Note, under the Kaldor-Hicks potential compensation criteria
the losers do not even have to actually be paid.
709E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
A key ethical concern highlighted by Stern is the need to
consider impacts on future generations. Discounting is
described as unethical.10
This ethical rejection of a pure time
preference rate is qualified by a 0.1% rate to allow for potential
extinction of humanity as a 9.5% chance within 100 years
(Stern, 2006: 47). Discounting is also in fact conducted on the
basis of economic growth reducing the utility of consumption
over time. The actual rates behind the headline results are
hard to find, but in Chapter 6 footnote 35 the baseline GDP
growth rate is given as 1.9%, arbitrarily selected from an IPCC
scenario (Stern, 2006: 161). Elsewhere the economy is mentioned
to potentially grow at 6% per year (Stern, 2006: 49). The
rate could vary, but let us take the assumed 1.9% baseline. This
must be combined with a factor for the utility of consumption.
Again the detail is hard to find with the factor exemplified as
being 1.5 by Stern (2006: 48), although 1.0 was apparently used
in Chapter 6 according to a post publication technical annex.11
The latter would mean that Stern's baseline discount rate is
2.00%.12
Even this apparently low rate reduces the weight of
benefits from avoiding damages to half their full value (50%) in
just 35 years, and 14% in 100 years. That is, the future is
dramatically reduced in importance within the lifetime of the
current generation and beyond that is effectively written-off.
This hardly seems to pay much attention to future generations,
let alone address ethical concerns. At 6% GDP growth
with a 1.5 factor using Stern's approach gives a 9.1% discount
rate, meaning the future has no weight in decisions after
40 years. The ethical judgement is abrogated, as being
prescriptive, in favour of a supposed descriptive efficiency.
This follows an economic defence of the orthodoxy found in
the IPCC third assessment (see Spash, 2002: 186­188), where
counter arguments are segregated as "non-economic," a
standard strategy (Kapp, 1978: 305­318).
Similarly, economics commonly assumes commensurability.
Past economic climate change studies have equated
recreational benefits with loss of life, e.g., more golfing in the
USA compensates for deaths in China or India (see Spash, 2002:
169­196; 2007a). While such disaggregation is not reported,
Stern do seek a single aggregate metric which includes
mortality, environmental damages and consumption changes.
The whole episode of controversy with the IPCC's previous
valuation of life is simply ignored. To their credit Stern use
weighting for consumption by the poor to help address income
inequity (although detail is absent). However, this does nothing
to address the violation of comparability i.e. more consumption
compensating for death and destruction. Incommensurability
raises serious problems limiting economic analysis (Aldred,
2002), showing different realms of value (Trainor, 2006) and
favouring alternatives to CBA for the articulation of environmental
values (Martinez-Alier et al., 1998).
That other ethical systems, especially deontological rights, are
not consequential, utilitarian or focussed on preference satisfaction
is given little serious attention. Stern note the potential for
"the right to be protected from environmental damage inflicted
by the consumption and production patterns of others," but then
restrict this to a discussion of low per capita emissions rights,
which they dismiss as an assertion which is unlikely to gain
approval (Stern, 2006: 42)13
. This short discussion effectively
removes the topic of rights to the protection from harm despite
having noted their presence in liability law (Stern, 2006: 41) and a
liability of rich to poor with respect to historical GHGs (Stern, 2006:
37). Instead the proposal is that "...future generations should have
a right to a standard of living no lower than the current one"
(Stern, 2006: 42). This is consistent with making the future rich
richer while harming the future poor. It also conflates the transfer
of resources for basic needs maintenance with compensation for
harming innocent people (Spash, 1994; 2002).
The basic issue is not the detail but the whole approach
(Spash, 2007b). Economists finding themselves facing a
complex and long-term problem recognise many of the key
issues. Stern repeatedly tell us that there is considerable
uncertainty over cause­effect relationships, that these will be
outside empirical observation (Stern, 2006: 293 ft nt7), that
their model relies upon "nonexistent data" (Stern, 2006: 153),
and that ethics and social values are crucial to the decision.
However they then squeeze all issues to fit within an existing
theoretical model which is totally inadequate for addressing
the problems they themselves have outlined.
4. The political economy of climate change
"The criticism of such a methodology is not that we always need
high-precision in our economic analyses. Rather, that it is wrong
to manipulate the uncertainties in information and conclusions in
such a way that recommendations turn out to be far more certain
than could possibly be justified scientifically." (Funtowicz and
Ravetz, 1994: 203).
Professional experts on climate change CBA may argue over
whether the control costs are as low and the benefits of control
(avoided damages) as high as Stern claim, but all employ the
same basic manipulation of information. So, in short, Stern
make numerous ad hoc assumptions and hidden ethical
judgements in order to use CBA so they can recommend GHG
control as a good investment with positive returns, a profitable
macroeconomic enterprise. More than this, Stern tell us that
financial institutions can make billions along with carbon
traders, energy suppliers and other entrepreneurs quick off
the mark. In contrast to their many qualifications on data their
recommendations are most certain: "Tackling climate change is
thepro-growth strategyfor the longerterm, and itcan be donein
a way that does not cap the aspirations for growth of rich or poor
countries." (Stern, 2006: viii). The more fundamental question is
why the prospect of human induced climate change is best
reflected in GDP at all, why is the problem being framed like this,
as "the pro-growth strategy"?
13
In this context they argue that such rights have been asserted
but must be argued. They are apparently unaware of the work
doing just that by Martinez-Alier (2002: 229­233).
10
The most comprehensive coverage of all issues relating to
discounting is Price (1993).
11
http://www.hm-treasury.gov.uk/media/54B/BA/Technical_an-
nex_to_the_postscript_P1-6.pdf.
12
The former produces a consumption discount rate of 2.85%
and overall rate of 2.95%.
710 E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
Consider two worlds. In state A there is no enhanced
Greenhouse Effect, there is no need for defensive capital
expenditures or new investment in energy sources, and the
fossil fuel economy continues into the future, say, eventually
switching to perfect substitutes. Economic growth can be
taken as more material consumption or reduced work hours.
In state B the enhanced Greenhouse Effect threatens to
destroy the economic system so mitigation is undertaken.
Investment goes into research and development of alternative
energy sources, new markets are established to trade carbon,
expenditures are undertaken to build new capital and
structures are adapted to changed temperatures and sea
levels. All these activities have displaced consumer and
capital items or potential for reduced working hours in state
A. Both states have human activity, both have GDP growth as
measured by throughput and people are fully employed doing
things. The point is that the states are qualitatively different
not quantitatively different. They are different worlds. Both
are actually pro-growth strategies, the difference is in terms of
"for what?" economic activity is undertaken.
Of course, state A above is nonexistent and, actually,
under state A there is potential for large surprises. The
surprises are not some bounded probability distributions
which experts can specify by starring into their crystal balls
and magically convert from vision to monetary value
(absolute or GDP). The surprises are potential scenarios
which scientists can outline to the best of their ability and
which involve loss of life and human infrastructure on a
grand scale; losses only precedented by the mass movement
of people, death and destruction of World War II. However,
there is no enemy to defeat nor peace treaty to sign, only our
own actions to control. Once the surprises start in earnest
action will be too little too late. For example, ice sheet melt
causing a six meter sea level rise is a scenario which would
flood all the major coastal cities. A two-meter sea level rise
alone will displace hundreds of millions of people and
inundate low lying cities (Lenton et al., 2006: 15). How does
this get transformed into X% GDP with any semblance of
meaning left in the utter disaster and human suffering which
would be entailed? Indeed, there are four major problems
with the whole framing of human induced climate change as
GDP losses and gains.
First, as Georgescu-Roegen (1975) explained, in critiquing
Daly's steady state economics, zero or even declining growth
does not prevent the exhaustion of resources. Yet Stern (2006:
iv) state that "if we are not `green', we will eventually
undermine growth." Georgescu-Roegen's point was that
even if we are `green' we cannot expect traditional economies
to continue ad infinitum in a finite environment (i.e. limited
by energy, materials availability and assimilative capacity).
Modern economies make disproportionate use of limited
stocks of terrestrial free energy versus the flow of solar energy
(Krausmann et al., 2007). A world which is concerned for future
human generations does not squander the resource base.
Thus Georgescu-Roegen recommended solar energy, organic
agriculture, population limitation, product durability, moderate
consumption, international equity, and disarmament.
Such fundamental ecological economics' messages, based on
the laws of thermodynamics, conflict with the pro-growth
stance of Stern.
Second, that an economy can grow through disaster
prevention shows that GDP measures activity not well-being,
and that the market system can feed-off itself. We are
supposed to plaudit GDP growth due to spending billions on
controlling and adapting to GHG emissions. The opportunities
for making money to prevent disaster are large.
"Climate change also presents opportunities for financial
markets. Capital markets, banks and other financial institutions
will have a vital role in raising and allocating the
trillions of dollars needed to finance investment in lowcarbon
technology and the companies producing the new
technologies." (Stern, 2006: 270) "The development of carbon
trading markets also presents an important opportunity to
the financial sector. Trading on global carbon markets is now
worth over $10bn annually" (Stern, 2006: 270).
GDP measures face a problem when addressing defensive
expenditures and are misleading if they treat them as positive
gains. There are goods and services which deliver direct
primary satisfaction in themselves and those that yield zero or
negative satisfaction, i.e. intermediate and defensive expenditures.
Intermediate goods and defensive expenditures do
not add to welfare and should therefore be distinguished as
such in GDP; this is a well known but apparently neglected
issue (Hirsch, 1977: 55­67). Indeed, GDP calculations too often
subsume expenditures for damage avoidance as positive
welfare growth. More generally, traditional macroeconomics
fails to address the "for what?" question and is only concerned
with aggregates of prices, employment and throughput.
Third, is the issue of removing poverty worldwide. This
needs to be addressed, but through direct attention to social,
economic and political constraints, not hopes of trickle down
from blanket increases in material throughput, and activity
regardless of reason or location. Distribution of wealth
remains a major neglected economic issue both within and
across nation states. For example, why exactly do the rich
need more consumption?
Fourth, economic growth is divorced from human wellbeing.
If the scale of the physical economy shrank 20% would
anyone in affluent societies really suffer that much? Perhaps
this is equivalent to the material goods unused in cupboards
and stored in garages? That economic growth is no panacea
and does not continually increase happiness has been pointed
out for some time (Mishan, 1969; Easterlin, 1974). For example,
Japan had a fivefold increase in real income from 1958 to 1987
but no increase in average self-reported happiness levels
(Easterlin, 1995). That large increases in the standard of living
have almost no detectable effects on life satisfaction or
happiness is discussed by Kahneman and Krueger (2006),
and is actually not restricted to affluent societies. They cite
evidence (N=15,000) for the decline in life satisfaction and
increase in reported dissatisfaction for China, 1994­2005,
despite real income increasing two and a half times over the
same period (Kahneman and Krueger, 2006: 15).14
They
conclude that "subjective well-being is not mainly a matter
14
They also note the considerable increase in material possessions:
household ownership of colour televisions from 40% to
82%, telephones 10% to 63%.
711E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
of income and consumption" (Kahneman and Krueger, 2006:
18) and point toward what appear more important: namely,
social contact, less commuting, reduced working hours or
improved work satisfaction, and social standing. The last of
these points raises the role of relative rather than absolute
income and social limits to well-being (see Hirsch, 1977).
So at best GDP is an aggregate measure of the monetary
value of throughput, not well-being or its distribution. The
distribution of impacts is more important than the gross
measure. Damages evenly spread across an entire population
are different from those concentrated on one city,
region or sector. Damages of materials are different from
destruction of support systems and human fatalities. GDP
loss hides the characteristics of physical and social impacts,
neglects their distribution, makes catastrophes appear
equivalent to a reduction in money flows, confuses financial
expenditures with welfare gains and replaces plurality with
monism.
Measuring environmental damages using economic
growth and investment analysis, as in the Stern report, can
then be seen as achieving the exclusion of substantive
arguments. There is no issue of consumption being incommensurable
with loss of life or harm of the innocent. Ethical
issues are encapsulated in preference utilitarianism. Future
generations are unimportant because they are assumed to
have more to consume. There is no debate as to the reasons for
more luxuries in Australasia, North America and Europe,
because the cake can grow regardless of what it consists, who
gets to eat it or how. There is no stark contrast between
deciding whether millions of people suffer and die rather than
airplane, car, oil, coal and energy supply companies having to
adjust their operations and rich consumers their consumption
habits. There is no question as to precaution in the face of
strong uncertainty. There is no moral storm (Gardiner, 2006).
There is only a bottom line in monetary rates of return. Rather
than asking why humanity should expect a positive rate of
return on climatic disaster prevention, the only question is
how large is the return?
The Stern report may be a subject of future research in terms
of political economy, motives and values, or perhaps it will soon
be forgotten like Cline's study. There are various potential
hidden political agendas to speculate about such as: supporting
newinvestment in nuclear power for the UK, fending-off a Green
vote in forthcoming elections, allowing the Treasury to justify a
newtax. Howeverthe key roleof the report wouldseemto be as a
justification for economic policy to continue with traditional
growth strategies and for such policy to be seen as offering the
"solution" with a bit more trading and some new technology.
This then explains why Stern do what they do. The
orthodoxy must be defended and the "for what?" question is
politically out of bounds. Neither the majority of the public nor
governments appear ready to face this inevitable question.
Stern therefore claim the moral high ground by raising ethical
critiques of CBA and issues of poverty and claim that they have
`state of the art' techniques to overcome these `analytical'
problems. Yet their results are no less arbitrary than any past
global CBA of the enhanced Greenhouse Effect. What they
achieve is a means of sidelining alternative approaches and
closing down the debate; this is essential if ever increasing
growth in material consumption and production is to remain
unquestioned along with the role played by social organisations
which benefit from the existing system.15
5. Concluding remarks
Stern raise the issues of inequity, ethics, treatment of future
generations, uncertainty, and extreme and catastrophic events.
In doing so past CBA studies are shown to be conservative and
biased. The brewing storm over the Stern report is likely to be
couched intechnical terms which conceal analysts' political and
value judgements, or produce ad hominem responses, as directed
at Cline. This commentary has tried to expose the fundamental
issues, which relate equally to Stern and other professional
experts on climate change CBA.
Like those others, Stern ignore the critical literature in
ecological economics and prefer to cite a mainstream economic
elite. The strengths I have noted show an apparent
awareness of a range of problems that are absent from similar
studies, but rather than debating issues or taking heterodox
ideas onboard they simply sideline critiques (as if they were
of no import). The result is the same as if the issues were
never raised, but more subtle in its muffling of voices. This
"conspiracy of silence" by those with much of their human
capital invested in supporting the orthodoxy is not new and
is often associated with a second line of defence which is to
exclude topics as "non-economic." To some extent the guard
is dropped by Stern on that second defence.
However, the approach taken clearly allows traditional
economic growth to be defended. The argument avoids the
fundamental question of why more consumption and production
is necessary. Indeed to ask such a question is economic
heresy because such growth is the foundation of modern
political economy, where the consumer is mythically sovereign,
firms have no political power and governments hardly exist.
That this orthodox economic model might be failing and is
impossible to sustain goes to the heart of ecological economics.
Modern economic growth has been locked-in to dependence
upon fossil fuels and these are the historical source of
the majority of GHG emissions. Humanity is facing the transformation
of the economy away from this dependence; that
transformation will come whether humanity chooses to
plan for it or not. A permanently smaller material economy
has been positively advocated, by literature on steady-state
economics, as something for which we should be planning.
Smaller by design, rather than smaller by disaster.
Several realisations are then relevant. A new economics is
required in which human well-being is addressed as a
multifaceted concept which involves a plurality of values.
Poverty in less industrially developed economies is not solved
by supplying more luxuries to the already wealthy. Traditional
15
One referee claimed Stern could do little else but ignore
ecological economic critiques of growth given the political context.
Indeed they infer that no one more radical than an ex-Chief
Economists of the World Bank would have been trusted to write
such a report. Their belief is that if a different (more heterodox?)
report had been forthcoming it would never have been published.
If true, this is a sad reflection on modern democracy and
economics as a science, but also supports the need for a radical
change in order to address the enhanced Greenhouse Effect.
712 E C O L O G I C A L E C O N O M I C S 6 3 ( 2 0 0 7 ) 7 0 6 ­ 7 1 3
"pro-growth" policies fail to address the problems humanity
faces, the necessary transition or the nature of widespread
environmental change we are undertaking. All these realisations
raise the question of economic activity "for what?".
The orthodox economic approach actually undermines
much of what is good in the Stern report by diverting attention
away from the value conflicts, distributional and ethical
issues, treatment of strong uncertainty and surprise events,
and handing over the entire debate to economic modellers and
a discourse based upon monistic universally commensurable
numbers. No longer is the issue about avoiding harm of the
innocent or how we structure the economy without destroying
the environment for future generations, but rather how much
consumption growth will be affected in rich (and poor?)
countries. The problem is framed as one of profitable returns
on an investment not precaution to avoid a disaster. At the end
of the day the Stern report is a standard economic approach to
weighing-up costs and benefits on the basis of over simplification,
adopting narrow ethical positions and sidelining much
of what the authors themselves state is important to consider.
Acknowledgments
Thanks to John Gowdy and Paul Baer for their comments as
referees during the submission process.
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