Wednesday, December 20, 2006

Maddison on Stern: A critical review

As a SCOOP for this blog I would just like to highlight again the review article written by our very own David Maddison (see 2 posts ago).

This article is over 5000 words long and provides a fairly comprehensive analysis of the fundamental weaknesses of the Stern Report.

What is incredible is the lack of input from well respected UK environmental economists in the writing of this report. It is clear from reading David's piece of work that the Stern report contains certain crucial errors many of which would not been made if the report had at the very least have been peer reviewed by academic economists who are experts in this field.

Some of the issues have been highlighted by other writers (and are referenced in this article).

Areas covered in this piece of work are as follows:

1. Introduction

2. Stern's recommendations and conventional policy prescriptions compared

3. The benefits of preventing climate change

4. The cost of abating carbon emissions

5. The optimal control of climate change

6. Discounting

7. Conclusion

Here is the conclusion. At the risk of disappointing climate change sceptics, the issue is not that climate change does not matter but how the process of reporting to the government was undertaken.
There is much in the Stern report with which one can wholeheartedly agree. Climate change is a problem. Climate policy can be informed by cost benefit analysis. The treatment of uncertainty is of paramount importance and economic instruments have a role to play in cutting carbon emissions. Permitting tropical deforestation is madness.

Some of the background material commissioned by Stern is top quality. But the review also contains errors, questionable judgement and inconsistencies. Stern moreover misses the opportunity to say some things which needed to be said. There is often insufficient information to discover what Stern and his team have done and how they arrive at key results. It would currently be impossible for another researcher to replicate Stern's findings for lack of information. Some of the evidence upon which the review is based is dated whilst more recent evidence has been overlooked. The Stern review should have been subject to far more extensive peer review prior to its release, particularly in the light of its political impact.

Because of the shortcomings highlighted here and elsewhere it is unclear whether the Stern report provides an economic rationale for the measures it commends.

Please click here to get access to the full [PDF] of the review article.

Further Comments on the Stern Review

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