Cost-benefit Analysis of Climate Change: Stern Revisited

Baer, Paul and Spash, Clive L. (2008): Cost-benefit Analysis of Climate Change: Stern Revisited.

Abstract

This paper explores the insurmountable challenges facing orthodox economic approaches to assessing climate control as if it were a matter of weighing-up the costs of money spent to benefits as the returns on an investment. Such am appraisal method borrows form project appraisal for financial investment and is inappropriate for addressing social costs. In appraising the recent approach to human induced climate change of to the UK Government report by Stern and colleagues serious flaws are noted that are equally applicable to other similar work by economists such as Nordhaus and Tol.

• Item Type: MPRA Paper
• Language: English
• Keywords: Climate economics; cost-benefit analysis; Stern review; catastrophe; human induced change; public policy; evaluation; monetary valuation
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O44 - Environment and Growth; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q53 - Air Pollution ; Water Pollution ; Noise ; Hazardous Waste ; Solid Waste ; Recycling; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

References

Barry, B. (1983) Intergenerational justice in energy policy. Energy and the Future. D. MacLean and P. G. Brown. Totowa, New Jersey: Rowman and Littlefield: 15-30.

Callahan, D. (1981) What obligations do we have to future generations? Responsibilities to Future Generations: Environmental Ethics. E. Partridge. Buffalo, New York: Prometheus Books: 73-85.

Cline, W. R. (1992) The Economics of Global Warming. Harlow, Essex: Longman.

d'Arge, R. C., W. D. Schulze and D. S. Brookshire (1982) Carbon dioxide and intergenerational choice. American Economic Association Papers and Proceedings 72(2): 251-256.

Funtowicz, S. O. and J. R. Ravetz (1994) The worth of a songbird: Ecological economics as a post-normal science. Ecological Economics 10(3): 197-207.

Gärdenfors, P. and N.-E. Sahlin (1988) Decision, Probability, and Utility: Selected Readings. Cambridge: Cambridge University Press.

Gardiner, S. M. (2006) A perfect moral storm: Climate change, intergenerational ethics and the problem of moral corruption. Environmental Values 15(3): 397-414.

Gintis, H. (2000) Beyond Homo economicus: evidence from experimental economics. Ecological Economics 35(3): 311-322.

Grubb, M., C. Carraro and J. Schellnhuber (2006) Technological change for atmospheric stabilization: Introductory overview to the Innovation Modelling Comparison Project. Energy Journal 27(Special Issue 1): 1-16.

Henry, C. (2006) Decision-making Under Scientific, Political and Economics Uncertainty. Chaire Developpement Durable. DDX-06-12 Paris, Laboratoire d'Econometrie de l'Ecole Polytechnique.

Hope, C. (2006) The marginal impacy of CO2 from PAGE2002: An integrated assessment model integrating the IPCC's five reasons fro concern. The Integrated Assessment Journal 6(1): 19-56.

Howarth, R. B. (1997) Sustainability as opportunity. Land Economics 73(4): 569-579.

Lomborg, B., Ed. (2006) How to Spend $50 Billion to Make the World a Better Place. Cambridge: Cambridge University Press.

Lowenstein, G. and D. Prelec (1991) Negative time preference. American Economic Review 81: 347-352.

Mendelsohn, R. (2006) A critique of the Sten Review. Regulation Winter: 42-46.

Nordhaus, W. D. (1991a) A sketch of the economics of the Greenhouse Effect. American Economic Review 81(2): 146-150.

Nordhaus, W. D. (1991b) To slow or not to slow: The economics of the greenhouse effect. Economic Journal 101: 920-938.

Nordhaus, W. D. (1994) Expert opinion on climate change. American Scientist 82(1): 45-51.

Nordhaus, W. D. (2006) The Stern Review on the Economics of Climate Change. 16 November. http://nordhaus.econ.yale.edu/SternReviewD2.pdf.

Nordhaus, W. D. and J. Boyer (2000) Warming the World: Economic Models of Global Warming. Cambrdige, MA: The MIT Press.

Norton, B. G. (1982) Environmental ethics and the rights of future generations. Environmental Ethics 4(4): 319-337.

O'Neill, J. (1993) Ecology, Policy and Politics: Human Well-Being and the Natural World. London: Routledge.

O'Neill, J. (1997) Managing without prices: On the monetary valuation of biodiversity. Ambio 26: 546-550.

O'Neill, J. (1999) Self, time and separability. Self and Future Generations: An Intercultural Conversation. T.-C. Kim and R. Harrison. Cambridge: Whte Horse Press: 91-106.

Page, T. (1983) Intergenerational justice as opportunity. Energy and the Future. D. Maclean and P. G. Brown. Totowa, New Jersey: Rowman and Allanheld: 33-58.

Page, T. (1988) Intergenerational equity and the social rate of discount. Environmental Resources and Applied Welfare Economics. V. K. Smith. Washington, D C: Resources for the Future: 71-89.

Parfit, D. (1983) Energy policy and the further future: The social discount rate. Energy and the Future. D. Maclean and P. G. Brown. Totowa, New Jersey: Rowman and Allanheld: 31-37.

Parfit, D. (1984) Reasons and Persons. Oxford, England: Clarendon Press.

Sagoff, M. (1988) The Economy of the Earth: Philosophy, Law, and the Environment. Cambridge: Cambridge University Press.

Schelling, T. C. (1997) The costs of combating global warming: Facing the trade-offs. Foreign Affairs 76(6): 8-14.

Smith, J. B., H.-J. Schellnhuber, M. Q. Mirza, S. Fankhauser, R. Leemans, L. Erda, L. Ogallo, B. Pittock, R. Richels, C. Rosenzweig, U. Safriel, R. S. J. Tol, J. Weyant and G. Yohe (2001) Vulnerability to climate change and reasons for concern: A synthesis. Climate Change 2001: Impacts, Adaptation, and Vulnerability. J. J. McCarthy, O. F. Canziani, N. A. Leary, D. J. Dokken and K. S. White. Cambridge: Cambridge University Press: 913-967.

Smithson, M. (1989) Ignorance and Uncertainty: Emerging Paradigms. New York: Springer-Verlag.

Spash, C. L. (1993) Economics, ethics, and long-term environmental damages. Environmental Ethics 15(2): 117-132.

Spash, C. L. (2002a) Dividing time and discounting the future. Greenhouse Economics: Value and Ethics. C. L. Spash. London: Routledge: 201-220.

Spash, C. L. (2002b) Greenhouse Economics: Value and Ethics. London: Routledge.

Spash, C. L. (2002c) Strong Uncertainty: Ignorance and Indeterminacy. Greenhouse Economics: Value and Ethics. London: Routledge: 120-152.

Spash, C. L. (2002d) Weak Uncertainty: Risk and Imperfect Information. Greenhouse Economics: Value and Ethics. London: Routledge: 97-119.

Stern, N. (2006a) Stern Review on the Economics of Climate Change. London, UK Government Economic Service. www.sternreview.org.uk.

Stern, N. (2006b) Technical Annex to Postscript. The Sten Review on the Economics of Climate Change. London. http://www.hm-treasury.gov.uk/media/1/8/Technical_annex_to_the_postscript_P1-6.pdf.

Tol, R. S. J. (2002) Estimates of the damage costs of climate change: Part II dynamic estimates. Environmental and Resource Economics 21: 135-160.

Tol, R. S. J. (2006) The Stern Review if the Economics of Climate Change: A Comment. 2 November. www.fnu.zmaw.de/fileadmin/fnu-files/reporst/sternreview.pdf.

Vatn, A. (2000) The environment as commodity. Environmental Values 9(4): 493-509.

Vatn, A. and D. W. Bromley (1994) Choices without prices without apologies. Journal of Environmental Economics and Management 26(2): 129-148.

Warren, R., C. Hope, M. Mastrandrea, R. S. J. Tol, N. Adger and I. Lorenzoni (2006) Spotlighting Impacts Functions in Integrated Assessment. Tyndall Centre on Climate Change Working Paper. 91 Norwich.

Yohe, G. (2006) Some thoughts on the damage estimates presented in the Stern Review: An editorial. The Integrated Assessment Journal 6(3): 65-72.