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Panel reviews economics of climate change

Stern Report was a 'wakeup call' to the world

Sir Nicholas Stern's report on the economics of climate change was a political document rather than a scientific one. It's based on some significantly flawed scientific premises--to a degree likely to undercut the report's credibility, in some circles at least.

But the report was significant for being produced at all--as the first attempt by a major national government to identify climate change "as an urgent and serious issue," as Paul L. Joskow, professor of economics, put it, and to quantify its costs.

These were some of the conclusions of an IAP presentation, "The Economic Impacts of Climate Change: a Discussion of the Stern Review," given Feb. 1, with Robert Solow, professor of economics emeritus, moderating.

The Stern report, commissioned by British Chancellor of the Exchequer Gordon Brown, and produced by a former chief economist of the World Bank, was released Oct. 30, 2006. It captured headlines with two critical numbers: 1 percent and 20 percent.

Global warming, left unchecked, could lead to the permanent loss of up to 20 percent of gross world product annually well out into the future, Stern warned. On the other hand, the cost of mitigating action to avoid the worst effects of climate change could be confined to only 1 percent of global GDP, he suggested.

The Stern report was hailed as a "wake-up call" to the world by Prime Minister Tony Blair and Hans Verolme of the World Wildlife Fund, among others.

The MIT review of Stern came on the eve of the release, in Paris, of another, bleaker assessment of global warming: the latest report of the Intergovernmental Panel on Climate Change (IPCC). This document was described as "a screaming siren" by Stephanie Tunmore of Greenpeace.

"This isn't a group that doesn't care about global warming," Henry Jacoby, professor in the Sloan School and the Joint Program on the Science and Policy of Global Change, told the standing-room-only crowd in E51-315. He was referring to his fellow presenters, making clear they weren't being dismissive of Stern, but were concerned that the report's weaknesses would give ammunition to those who argue against the need for action.

Specifically he challenged Stern's "1 percent" estimate of the cost of remedial action and assumptions about falling energy costs.

Ronald Prinn, professor of earth, atmospheric and planetary sciences, addressed the report's scientific premises, faulting Stern for failing to consider rates of change (since some ecosystems can adapt somewhat as they go along) or to distinguish among greenhouse gases with differing lifetimes (methane dissipates relatively quickly; perfluorocarbons last tens of thousands of years).

Prinn also faulted Stern's "basis toward high-end impacts." But the Stern report offers "an integrated assessment, with some attention to uncertainties," Prinn noted. This approach, which includes physical and biological as well as economic and social components, and has been MIT's approach to the study of climate change, is "unusual" in an international document and "has not yet been achieved by the IPCC."

John Parsons of the MIT Center for Energy and Environmental Research Policy hailed the Stern report for its risk-management approach. "One of the good things about this is that it's replete with honest acknowledgments of uncertainties," Parsons said.

John Reilly of the Joint Program on Global Change faulted Stern for not assuming that those affected by climate change--farmers facing crop failures, for instance--will change and adapt somehow. "To not learn from here to eternity is a big assumption."

Addressing the question of public attitudes on global warming, Stephen Ansolabehere, professor of political science, took issue with figures cited in the Stern report showing that Americans express the lowest level of concern about climate change of any group polled.

The only meaningful measure of public concern about a given issue, Ansolabehere said, is expressed willingness to pay to solve it. He said his own research suggested that Americans are like citizens elsewhere: Very few are unconcerned about global warming, and they are willing to pay for mitigation--but not very much. In his survey sample, roughly 30 percent of respondents would pay $10 a month more on their electricity bill "if it solved global warming." Only about 5 percent would pay as much as either $50 or $100 extra per month.

On the other hand, he noted that over the past few years global warming has moved significantly up the list of environmental issues the public is concerned about--"although that probably has more to do with pictures of polar bears on ice and those penguin movies than with the Stern report," he added. The share of Americans calling global warming the most important environmental issue rose from 11 percent in 2003 to 35 percent in 2006.

Also significant is President Bush's apparently new view that climate change is an issue. "That is an enormous, colossal change," Ansolabehere said.

A. Denny Ellerman, senior lecturer at the Sloan School of Management, reviewed the international dimension of the Stern report. He noted Stern's "sober but upbeat view," and his references to some significant success stories in global cooperation: the Green Revolution in agriculture and the liberalization of world trading rules. Ellerman also invoked the Marshall Plan, which helped rebuild Europe after World War II.

More recently, the European Union's Emissions Trading System has, whatever its imperfections, created a price for carbon in all 27 member countries. And that carbon price will be a fact that subsequent negotiations elsewhere in the world will have to take into account.

"What made the Europeans sign on to ETS?" Ellerman asked rhetorically. Still, he suggested that climate change will remain a serious challenge to international diplomacy for centuries.

A version of this article appeared in MIT Tech Talk on February 14, 2007 (download PDF).

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