Equity, The Stern Review, and What We Should Do About Climate Change

March 12th, 2007 <-- by Scott Barrett -->

Climate change may or may not be the world’s most important challenge, but it is certainly the most complex. Indeed, it may be the most complex challenge the world has ever faced.

That is why the conclusions reached by the Stern Review stand out. Sir Nicholas Stern and his colleagues looked carefully at this complex problem and concluded, simply, that “the benefits of strong, early action considerably outweigh the costs.” Previously, the “mainstream” economics literature had concluded that emissions should be reduced now but that “strong” action should be delayed.

Why the difference? The main reason has to do fundamental ethical matters—that is, value judgments.

According to Stern, near term action to reduce emissions will affect the climate only decades from now. Substantial losses do not appear for a century or more. To justify strong action now, today’s generation must care a lot about the future generations that will benefit from their sacrifice.

Two ethical parameters reflect this concern for the future. The first reflects the weight that the current generation attaches to the wellbeing of future generations. Are future generations worth any less simply because they exist in the future? Stern says yes but only because there is a chance that the future will not exist at all. The possibility of extinction is relevant, but the weight we attach to the future is a fundamental social choice; it may reflect more than the probability of the Earth being hit by an asteroid.

The second ethical parameter is, in my view, the more important. It also points to an inconsistency in Stern’s analysis. Let me explain:

Stern predicts substantial damages by 2200 if nothing is done in the meantime to reduce atmospheric concentrations of greenhouse gases. But over the next 193 years more than the climate will change, and some of these other changes are also relevant to the choice of what we should do. One such change expected by Stern is a significant rise in per capita consumption. According to Stern, by the time damages from climate change become substantial, “growth in GDP will have made the world considerably richer than it is now.”

The second ethical parameter reflects how we compare the wellbeing of societies having different per capita consumption levels. These include richer and poorer communities today, and richer and poorer generations. Stern chooses a relatively low value for this parameter. A higher value, reflecting a greater concern for equity, would have discounted the future more heavily simply because, in Stern’s analysis, the future is expected to be better off even with climate change.

Stern’s words betray a deep concern for equity. Stern argues that rich countries should reduce their emissions today to help today’s poor countries decades from now, because poorer countries are more vulnerable to climate; but he concludes that today’s relatively poor generation should help richer generations living in the future.

There is an inconsistency here. Stern cares deeply about equity but he chooses a low value for the equity parameter. Why does he do this?

The reason is that in his model, as in all other models of its kind, the only way in which rich and poor societies interact is via emission levels. In Stern’s model, today’s rich countries can help today’s poor countries only by reducing their emissions, and it takes many decades for this sacrifice to yield any fruit.

A more appropriate model would allow rich countries to assist the poor sooner and in other ways. A higher value for the ethical parameter would increase transfers from rich countries to poor countries but shift these transfers away from mitigation and towards adaptation assistance.

Here is the real equity problem: Is it better to cut emissions today so as to reduce climate change damages experienced by poor countries in the future, or is it better to make other investments that can benefit poor countries today—and, in the bargain, help to insulate them from future climate change? Of course, we need to do both, and Stern would agree with me here, but how should we balance these allocations? They are not separate problems. Investments in adaptation should be co-determined with the emissions path.

Stern agrees that adaptation assistance is needed, but his postscript says that this “will come in large part through the delivery of the commitments made by rich countries to double aid by 2010 and the commitments made by many countries to meet the target of 0.7% of GNI by 2015.”

To rely on such generosity materializing outside of his own framework underscores the fundamental problem with Stern’s analysis.

There are four reasons why an integrated analysis is required: First, promises of increased development assistance have been made before without being fulfilled. Second, it is not the outlay that matters but the effect on development. Third, adaptation is a substitute for mitigation. If countries supply less mitigation, they must contribute more to adaptation; the two policies should not be kept at arm’s length. Finally, the motivation for providing adaptation assistance is different than for providing development assistance. The motivation is not compassion; it is an acknowledgement of a responsibility to help. The rich countries did not make the poor countries poor, but they are largely responsible for the accumulation of greenhouse gases in the atmosphere.

2 Responses to “Equity, The Stern Review, and What We Should Do About Climate Change”

  1. Caspar Henderson Says:

    When considering policies and actions with more than one goal (e.g. mitigation and adapation) how about a thought experiment regarding some specific impacts of climate change (taking account of uncertainties surrounding these)?

    Take sea level rise. Many of the economic and other impacts of a given level of increase may be predictable with reasonable confidence (at least in comparison to uncertainties regarding some other aspects of climate cange. So hypothecate a range of sea level rises, and consider cost of adaption and/or mitigation that reduces the probability of a given rise?

    [Response: SB RESPONSE: Actually, the problem can be expressed as a single goal (and is expressed in this way by Stern). In a growth theory context, it would be the discounted sum of current and future social wellbeing. The important point is that the analysis should allow interactions within as well as between generations, through adaptation assistance as well as mitigation. You may prefer a different objective than the one chosen by Stern (though his objective is standard), but the problem I was pointing to had only to do with the policy choices available to Stern in this model (his broader analysis of climate change is unhampered by this constraint--the source of the inconsistency noted in my post).

    Your comment, however, can be interpreted as offering another perspective. These models put everything that is of interest in money terms. This allows us to add things up, and to make direction comparisons of policies having different consequences. But it also masks important things that people care about--like the effect of sea level rise, after taking adaptation into account, in different locales; like the location and quantity of new nuclear power plants and waste storage sites; like the prevalence of vector borne diseases in different locations; like the material standard of living in different countries over time; and so on. My preference would be for analysists to describe these real consequences to us--these alternative futures. I think people care about what the world will look like in these "real" terms, depending on the choices we make now and in the future. Thanks. -sbarrett]

  2. Virginia Says:

    “The rich countries did not make the poor countries poor” This is contentious…

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