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Abstract
The Stern Review, Stern (2007), received a lot of attention upon its release. It also resulted in an intense and interesting debate within climate change economics. One of the central issues has been the question of the appropriate discount rate to use and more generally the proper role of ethics in an economic analysis of this kind. Some have argued against incorporating ethical considerations at all, while others argue that Stern did not involve ethics enough. There are also those who question whether Stern provided an economic analysis at all. This paper analyzes Stern (2007) and the surrounding debate from a methodological point of view. Basically three conclusions are reached. First, Stern involves a number of different kinds of interdisciplinarity based on the Mäki (2007) characterization of interdisciplinarity. Second, the interaction of economics and ethics is unavoidable within climate change research. Third, Stern uses a modified version of the standard economic approach to climate change and the deviations are well motivated (i.e. it is still a valuable economic analysis).
Acknowledgements
The author wants to thank John B. Davis, D. Wade Hands, and conference participants at European Association for Evolutionary Political Economy (EAEPE) 2009 in Amsterdam, Association for Social Economics (ASE) 2010 in Montreal, and International Network for Economic Method (INEM) 2010 in Birmingham, Alabama, for comments. Financial support from the Swedish Retail and Wholesale Development Council is gratefully acknowledged.
Notes
1. The Stern Review was released in the autumn of 2006, and was then made available on the Internet. A book version was available in 2007, Stern (2007), incorporating a postscript answering some of the initial reactions. In this paper, we refer to the Stern Review as Stern (2007) unless we specifically want to refer to the Internet version.
2. See Jordan and Lorenzoni (Citation2007) regarding the background of Stern (2007) and some of its initial implications for the British energy policy. A good example of the declining influence is the latest climate report from the British Department of Energy and Climate Change (DECC Citation2009), which uses an alternative approach but still devotes a special chapter to comparison with Stern (2007).
3. Note that the meaning of ‘successful’ here is yet to be examined as well.
4. Since the Stern Review was released in 2006, it used the IPCC report dated 2001 (the third report).
5. In Stern (2007), there is also one part on the impact of climate change (mainly descriptive) and another on international political agreements. Although they both are interesting, they are not of importance in this paper given its purpose.
6. That is, these are the damage costs we will more or less avoid if we decide to take action against climate change.
7. To be more exact, according to Stern (p. 260) the range is between – 1.0% and 3.5% based on the assumptions made.
8. An IAM basically combines likely outcomes based on climate changes (as predicted by the natural sciences) with their economic valuations. The major advantage of the PAGE2002 is that it is a stochastic modeling approach and better accounts for uncertainties.
9. Stern refers to Weitzman's (Citation1974) classical paper which shows that taxes are preferred when the marginal social cost of carbon curve is relatively flat, and emissions trading is preferred when the curve is sharply rising. Unfortunately, in reality, the slope of the marginal social cost of carbon curve is difficult to decide (if at all) and the task of deciding what alternative to apply is not that apparent.
10. Stern (2007, p. 52) also mentions a version of this equation on one occasion, but does not emphasize it nor use it in his argumentation.
11. Nordhaus is one of the initiators of the climate-policy ramp, described by himself (p. 687) as ‘one of the major findings in the economics of climate change.’
12. In the case of r, it is argued to be the average real return on capital for the last four decades.
13. Weitzman (p. 707) does not motivate these values but instead argues ‘I am not going to try to defend the ‘trio of two values’ with a bunch of citations but instead I pretend for the time being that every critic of Stern thinks they are about right.’ Other reasonable suggestions according to Weitzman, also resulting in r = 6%, are δ = 1%, η = 2.5, g = 2%, and δ = 0, η = 3, g = 2%.
14. These ideas are further developed in Weitzman (Citation2009). Stern (2007), on the other hand, argues in terms of investment.
15. This is also mentioned by Weitzman (2007, p. 706).
16. The fourth one is Weyart (Citation2008), best described as ‘in-between.’
17. Mendelsohn admits, however, that the longer time horizon applied in Stern (2007), 2200 instead of 2100, is an improvement.
18. Sometimes, a CBA borrows certain important values such as discount rates and value of statistical life from similar CBA, i.e. the so-called benefit transfer (e.g. see Hansson Citation2007). In those cases, no complete CBA is performed and this kind of intervention should reasonably be said to involve a lower degree of multidisciplinarity.
19. A fourth version of interdisciplinarity mentioned by Mäki (2007) is called trans-disciplinarity and goes even deeper. In this case ‘transcending’ is emphasized meaning old disciplines transcend into new ones. However, this form is not of interest to our analysis.
20. Climate change research is also mentioned in Mäki (2007) as an example of multidisciplinarity.
21. This is also indicated in the Stern (2007, p. 319) quote mentioned earlier in this paper in relation to his basic approach (about the structure and strength of the interaction between science and economics).
22. According to Azar (1998, 308): ‘the term “descriptive” largely loses its meaning for time horizons longer than a couple of decades.’
23. Observe that in so far as the interaction of economics and ethics is concerned, we have not touched at all on the vital issue of the unequal distribution among countries of climate change related costs and historic responsibility.
24. According to Gardiner, a moral storm is when we have difficulties making necessary hard choices and probably become susceptible to moral corruption.
25. To be specific, Parker (2006) argues for a combination of ontic competitive pluralism and pragmatic integrative pluralism.