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Policy Area Papers on Environmental policy

Economics, Science and Climate Change
Julian Gough, World Economics, June 2016
The Intergovernmental Panel on Climate Change (IPCC) contends that global warming is largely due to the burning of fossil fuels, leading to increased carbon dioxide (CO2) concentration in the atmosphere. This theory is tested with global data from three different periods – the last 1,000 years, the last 120 years and the last 18 years. Two models are specified: firstly, to determine if there was global warming in each period, and secondly, what role CO2 played in this. The results cast significant doubt on the IPCC model and therefore on the wisdom of climate change policies already implemented in many western nations. The economic consequences of these policies is then analysed in the effects on economic activity, energy supply, industrial output, emissions trading, consumer behaviour, and the financial cost of obtaining a global agreement on CO2 emissions. The article notes that the IPCC model is currently failing to predict global temperatures accurately and is too simplistic in its neglect of the natural causes of climate change. Hence, policies enacted by many western nations are likely to impose large costs on their economies, but have little effect on the world’s climate.
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The Paris Climate Agreement heightens development challenges in Africa
Hippolyte Fofack, World Economics, June 2016
Although the Paris Agreement lacks a binding mechanism for capping carbon emissions, and a legally binding financial commitment to support climate change adaptation and mitigation in the developing world, it establishes a legal framework to accelerate the transition towards a low-carbon economy at the global level. The rise of the green economy under the proposed Agreement offers tremendous opportunities for growth and economic development, especially for Africa, which has abundant endowments of renewable energy and resources. African countries’ ability to seize these opportunities and accomplish the transition to the low-carbon development economy articulated in the Agreement will depend on their capacity to increase their access to carbon-free technologies and to draw consistently on these technologies to expand the scope of green investments in support of structural transformation and trade diversification.
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Investing in green growth for sustainable development in Africa
Hippolyte Fofack, World Economics, September 2015
An overview of the distributional impact of global warming shows that the negative externalities of carbon-intensive development models are already significant in Africa. The most compelling reasons for promoting green investments in Africa is the direct economic returns in terms of savings and employment opportunities. Most renewable energy jobs created over the last few years have occurred outside Africa possibly another missed opportunity after the information and communication technology (ICT) revolution. Carbon-free technologies must not be used to sustain income inequality and macroeconomic imbalances between industrialized and developing countries, but to uniformly boost green investments.
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Are There Limits to Green Growth?
Edward B. Barbier, World Economics, September 2015
Although there is progress in developing green sectors in some countries, the key challenge facing the expansion of economy-wide green innovation and structural change is the absence of relevant policy follow-up to the green stimulus enacted during the Great Recession. The boost to green sectors provided by such measures is waning quickly, given that much of the green stimulus focused on energy efficiency. The biggest obstacles to sustaining green growth are major market disincentives, especially the underpricing of fossil fuels and market failures to spur green innovation. A three-part strategy to overcome these obstacles would involve, first, removing fossil fuel subsidies, second, employing market-based instruments to further reduce the social costs of fossil fuel use, and third, allocating any resulting revenue to public support for green innovation and investments. Such a strategy would ensure that green growth is not about promoting niche green sectors but instigating economy-wide innovation and structural transformation.
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Measuring Natural Capital: The main issues
Dariana Tani, World Economics, December 2014
The purpose of this paper is to highlight the importance of establishing a system of natural capital accounting. Natural capital is integral to the economy and yet it is routinely taken for granted because the goods and services it provides are generally freely available. The consequence is that without prices, these resources are not being allocated efficiently within the economy and opportunities for significant gains in well-being and the possibility of long-term future growth are being lost. Recent works by the World Bank and the Inclusive Wealth Report have provided a wealth accounting framework, which gives more emphasis to environmental assets; however, due to data and methodological limitations, they inevitably failed to capture all assets of natural capital as defined by the Natural Capital Committee’s (NCC) State of Natural Capital Report.
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Low-Carbon Development for the Least Developed Countries
Alex Bowen & Sam Fankhauser, World Economics, March 2011
The global community has to act collectively to halt climate change. But such collective action must take into account the development needs of the least developed countries (LDCs), which are likely to be hit earliest and hardest by climate change. The priority of such countries remains poverty alleviation and the achievement of the Millennium Development Goals, but the three challenges of limiting climate change, adapting to its consequences and reducing poverty have to be faced together. This requires LDCs eventually to follow a development path that differs from those trodden by today’s industrial countries and emerging market economies. There is no room in the long term for high-emission economies, and high-carbon growth is unsustainable given the possible consequences for fossil-fuel supplies and climate-change impacts.
Towards New Thinking in Economics: Terry Barker on structural macroeconomics, climate change mitigation, the relevance of empirical evidence and the need for a revised economics discipline
Şerban Scrieciu, World Economics, March 2011
Terry Barker is a leading British economist in macroeconomics, climate economics and empirical analysis. For over 45 years, he has been involved in research at Cambridge on economic theory and applied economics, in areas such as: trade theory and space and time economics; structural macroeconomics; and the macroeconometric modelling of energy-environment-economy interactions. This has included trade theory, space-time economics, climate mitigation economics, and macro-econometric modelling. Though he can be considered a ‘descendant’ of Keynes, Barker defies any categorisation of belonging to a particular school of economic thought. A notable contribution has been his empirical modelling work showing how tougher climate mitigation policies may actually bring long-term socioeconomic benefits. Whilst at the conference on new economics as ‘mainstream’ economics that he initiated in January 2010 in Cambridge, we discussed at length his extremely interesting viewpoints and research. This interview takes the reader through the intellectual history and work of a determined man, who has never ceased encouraging new ideas and pushing forward fresh economic thinking for the benefit of societal progress.
Keith Boyfield on Paul Collier: The Plundered Planet

World Economics, September 2010
There is no summary available for this paper.
Green Stimulus, Green Recovery and Global Imbalances
Edward B. Barbier, World Economics, June 2010
This paper assesses the extent to which G20 green stimulus initiatives enacted during the 2008–9 recession have instigated a global ‘green recovery’, and how further green recovery policy initiatives by the G20 relate to concerns about chronic fiscal deficits and global imbalances. Implementing further green measures will require G20 economies to commit to increased public investments, new pricing policies, improving regulations, more aid disbursements and other policy changes. Although there may be concern that these additional initiatives could worsen the chronic fiscal deficits and structural imbalances, if properly enacted, such a green economic recovery strategy should help alleviate, rather than worsen, unstably large fiscal deficits, long-term real interest rate rises and inflation, and global imbalances.
A Tale of Two Crises
Harold Lind, World Economics, June 2010
The paper argues that many erroneous conclusions derived from modelling are due to mistakes in logic rather than scientific methodology. The widely accepted models predicting the catastrophic consequences of carbon emissions, and suggesting how cuts by the developed world can prevent them, all ignore population growth and distribution, and such data are not used as independent variables in the global warming models. This casts doubt on the probability of the models, and even more on the suggested solutions, as an astonishingly high degree of accuracy in highly complex forecasts over a period of almost a century would be required, without which the extremely costly ‘solutions’ would be either unnecessary or insufficient. Over a 30-year period, forecasts of population are likely to be much more accurate than those for climate. Within such a period, population in the world’s poorest countries will almost double, leading to virtually all the disasters that are predicted to arise from global warming some decades later. Since many measures taken to avoid putative global warming are likely to exacerbate the more rapidly approaching dangers of population growth, it would appear logical to give more consideration to assisting the poorer countries rather than impoverishing the rich.
Carbon Commitments Must Translate into Real Action
Andrew Raingold, World Economics, March 2010
The efforts of political leaders to negotiate a global agreement to reduce carbon emissions highlights the importance of consistent action at the domestic level. To gauge the efficacy of any international agreement and subsequent reductions, a clear, consistent and comparable approach to carbon disclosure must be adopted by UK companies. This allows economic benefits, as carbon reporting is an enabler for energy efficiency and a driver for better, cleaner technology in new markets. Furthermore, the pursuit of the perfect reporting framework must not be the enemy of the good, as the urgent need to address the causes of climate change requires immediate action to drive reduction in carbon emissions by UK plc.
Global Climate Change
F. Gerard Adams, World Economics, September 2009
There is no summary available for this paper.
How Much Would it Cost to Avoid Climate Change?
Bryan Buckley & Sergey Mityakov, World Economics, March 2009
This paper summarises various estimates of the costs of mitigation of the adverse impact of climate change. It finds that the differences in the estimated impacts on gross domestic product, consumption, employment, and gasoline, electricity and natural gas prices are driven mainly by the following factors: the time frame of new technology development, the growth potential of existing clean sources of energy, the availability of offsets (domestic, international), and the banking of allowances.
However, its main finding is that, even for more optimistic estimates, the mitigation costs are likely to amount to as much as a 1% drop in consumption, starting today and going into the future, which, as is argued in this paper, constitutes an enormous impact on social welfare. Thus, it is important to carefully assess the costs of global warming to see whether they justify such drastic measures.

A Question of Fudge: Professor Nordhaus on climate change and mitigation policy
Mohammed H.I. Dore, World Economics, March 2009
This paper is an outline and critique of William Nordhaus’ book A Question of Balance (2008), in which he proposes his optimal policy for dealing with global climate change. Nordhaus finds that the proposals of the Stern Review and that of Al Gore are inefficient and costly. The critique of Nordhaus is focused on (1) the structure of his model, which requires marginal costs be equal to marginal benefits everywhere and at all time periods, and that (2) the rate of discount be based on the opportunity cost of private capital, and (3) his failure to treat climate change as a global public good.
Economists and Climate Science: A Critique
David Henderson, World Economics, March 2009
This paper presents a critique of the characteristic treatment by economists of climate science, which appears as over-presumptive and uncritical. While the paper draws on a range of illustrative cases, the main focus is on six recent and important contributions. The present author argues that the authors and sources concerned, along with a good many others not quoted, have accepted too uncritically the received view as to the current significance of anthropogenic global warming and its possible dangers. They have placed undue trust in the official advisory process that governments have created and rely on, and disregarded evidence that puts that process in question. Hence there is a missing dimension in their treatment of policy aspects: they have not caught on to the need to strengthen the basis of policy by making the advisory process more objective and professionally watertight.
New Light or Fixed Presumptions?: The OECD, the IMF and the treatment of climate change issues
David Henderson, World Economics, December 2007
Two leading international agencies, the OECD and the IMF, are now becoming more closely involved with climate change issues, in conjunction with finance and economics ministries within their member countries. This broader official involvement opens up an opportunity: it could lead to a more informed and less presumptive treatment of the issues. At present, however, there is no sign that the opportunity will be perceived as such. In both the agencies and national capitals, it is taken for granted that ‘the science’ can be viewed as ‘settled’, and that the established advisory process which governments have created is objective and authoritative. For reasons set out here, this is not the right point of departure. A new framework is needed—less presumptive, more inclusive, more watertight professionally, and more attuned to the huge uncertainties that remain. Besides dealing with specifically economic aspects, work in both agencies should be directed more broadly to creating such a framework.
Do Current Assessments Underestimate Future Damages From Climate Change?
Stéphane Hallegatte, World Economics, September 2007
While the economic debate on climate policy focuses on discounting, we do not know yet what to discount. The potential (non-discounted) socio-economic cost of climate change, indeed, is still unknown. Only a few studies have tried to estimate socio-economic costs of climate change. Most of them concluded that, for a warming of a few degrees, damages will be limited to a few percent of GDP. All these studies, however, have disregarded important mechanisms and have only considered the cost of a stabilized new climate. This article claims that the climate change issue should instead be framed in terms of the adaptation of socio-economic systems to a changing climate. Doing so, it calls for the taking into account of (1) the interaction between the uncertainty on future climate and the inertia of important economic sectors; (2) the short-term economic constraints that will be key in the response to climate shocks. Finally, the impacts of climate change cannot be estimated assuming that societies will always be able to manage in a perfect way the subsequent change in risks, as past experiences demonstrate our poor ability to do so. These mechanisms suggest that the uncertainty on future climate change damages is even larger than is usually acknowledged, and calls for additional research on climate change impacts.
Right for the Right Reasons: A final rejoinder on the Stern Review
Simon Dietz, Dennis Anderson, Nicholas Stern, Chris Taylor & Dimitri Zenghelis, World Economics, June 2007
Four authors of the Stern Review on the Economics of Climate Change, and Dennis Anderson who provided advice and background papers for the Review, make a final rejoinder on the debate about the Review that has occupied recent issues of this journal. They respond to comments in the present issue by Carter et al., by Henderson, and by Tol and Yohe. Carter et al. continue to argue against a growing body of scientific evidence and a growing consensus on that same evidence. The source of their critique is, first, a distinctly partisan, and increasingly untenable, position on the broad range of available scientific evidence and, second, a mistrust of the international consensus-building exercise centred on the Intergovernmental Panel on Climate Change. Henderson is also largely preoccupied with the latter, procedural issues. Tol and Yohe focus on economic arguments. Their critique is rather narrower in focus and concerns the way in which abatement costs were calculated in the supporting work carried out by Dennis Anderson. It rests on basic confusions and misconceptions, many of which were explained in previous contributions. However, readers of World Economics might be more interested in a broader reflection: how would the Stern team, following the debate of the last eight months, assess the approach, policies and arguments set out in the Review? Their view is that their analyses and policy proposals, and the arguments in support, are sound and have stood up well to scrutiny. In other words, they were right and for the right reasons. Central to many critiques of the Review is a fundamental misunderstanding of the role of formal, highly aggregated economic modelling. Nevertheless, the Stern team have argued strongly and in their view convincingly that, even within the confines of formal economic modelling, the concerns raised by a small group of commentators do not overturn their basic conclusion that the cost of action is much less than the cost of inaction. The critics here fall short by failing to simultaneously afford the necessary importance to issues of risk and ethics.
Governments and Climate Change Issues: The case for rethinking
David Henderson, World Economics, June 2007
Governments, and in particular the governments of the OECD member countries, are mishandling climate change issues. Both the basis and the content of official policies are open to serious question. Too much reliance is placed on the established process of review and inquiry which is conducted through the agency of the Intergovernmental Panel on Climate Change. This process, which is wrongly taken to be objective and authoritative, has been made the point of departure for over-presumptive conclusions which are biased towards alarm, in the mistaken belief that ‘the science’ is ‘settled’. Rather than pursuing as a matter of urgency ambitious and costly targets for drastic further curbing of CO2 emissions, governments should take prompt steps to ensure that they and their citizens are more fully and more objectively informed and advised. This implies both improving the IPCC process and going beyond it. As to the content of policy, it is not the case that the choice now lies between two extremes, of no action and the immediate adoption of much stronger measures to curb emissions. The orientation of policies should be made more evolutionary and less presumptive, with actual policy measures focusing more on carbon taxes rather than the present and prospective array of costly and intrusive regulatory initiatives.
Climate Science and the Stern Review
Robert M. Carter, Chris de Freitas, Indur M. Goklany, David Holland & Richard S. Lindzen, World Economics, June 2007
Fundamentals of the climate science dispute and common misunderstandings of some issues raised about Part 1 of the Dual Critique of the Stern Review [Vol. 7, No. 4] are discussed. One consideration is that a distinct anthropogenic greenhouse gas signal has not yet been identified within natural climate variations. The slight warming that has occurred in the late 20th century, falling within previous natural rates and magnitudes of warming and cooling, is a priori unalarming. Empirical evidence shows that the warming effect of increasing carbon dioxide at the rates of modern industrial emission and accumulation is minor, noting the established logarithmic relationship between gas concentration increases and warming. No global increase in temperature has occurred since 1998 despite a 15 ppm (4%) increase in carbon dioxide concentration, and an expectation of continued warming even at constant CO2 levels. The key issue is assessment of risk, but that includes the risk of future coolings as well as warmings, as well as their significance relative to other factors. This is why an adaptive policy towards climate change is the most sensible response option.
A Stern Reply to the Reply to the Review of the Stern Review
Richard S. J. Tol & Gary W. Yohe, World Economics, June 2007
Tol and Yohe point out that, in their reply [Vol. 8, No. 1] to Tol and Yohe’s review [Vol. 7, No. 4], the Stern team demonstrates the fragility of the numerical findings of the cost–benefit analysis in the Stern Review. At the same time, the Stern team puts less weight on cost–benefit analysis as a guide to policy making on climate change. Tol and Yohe show that the Stern Review allows several, mutually contradictory interpretations of the model that underlies the cost estimates; and argue that each interpretation implies that Stern’s cost estimates have a severe downward bias.
Response to ‘The Stern Review: A Dual Critique—Part I: The Science’
Ian Simmonds & Will Steffen, World Economics, June 2007
In their comments on part one of the ‘Dual Critique’ [Vol. 7, No. 4] the authors draw attention to a number of instances where the treatment of sources and evidence is selective and biased, and perhaps where it reveals a modest understanding of the vast amount of conventional and well-established literature on climate science and allied topics. The purpose of this record is not fundamentally to dissect all the main points made by the Dual Critique authors. Rather, Simmonds and Steffen have confined themselves to commenting under a few headings on issues which they found particularly striking (grossly misleading, inconsistent with the workings of the climate system, or just plain wrong).
How Many Wildebeest do You Need?
Mike Norton-Griffiths, World Economics, June 2007
The catastrophic decline of wildlife in Kenya—some 60% over the last 30 years—finally galvanised the government into a review of wildlife policy. But what should have been a sober discussion of market failures, institutional failures, policy failures and conservation failures was hijacked by the international animal welfare lobby and degenerated into a sterile shouting match about the reintroduction of consumptive utilisation and sport hunting. The resulting Wildlife Act, by pandering to the welfare lobby, removes all remaining incentives for communities and landowners to keep wildlife on their land.
A Response to ‘The Stern Review: A Dual Critique’
Andrew Glikson, World Economics, March 2007
Any consideration of the potential economic consequences of climate change depends critically on the physical evidence for this process. In this response, Andrew Glikson questions the Dual Critique authors’ understanding of the science. Also, the paper’s repeated use of the term ‘alarmist’ and other derogatory language reflects adversely on the professional integrity of climate scientists, whose ethical duty it is to draw attention to observations of potential concern to society, and does nothing to advance the science or logic of the criticisms made. ‘Scepticism’ is inbuilt into the scientific method, where working hypotheses are subjected to tests based on a range of perspectives. By contrast, inherent in ‘climate change scepticism’ is a pre-conceived negation of anthropogenic climate change, followed by a search for real or imagined errors in climate science—an approach reminiscent of that used by creationists who attempt to challenge Darwinian evolution.
Response to ‘The Stern Review: A Dual Critique’
Nigel Arnell, Rachel Warren & Robert Nicholls, World Economics, March 2007
This article is a response to the articles in the previous issue of World Economics by Carter et al. and Byatt et al., which criticized the Stern Review of the Economics of Climate Change’s assessment of the potential impacts of climate change. The authors demonstrate that the Stern Review does not underestimate the extent of uncertainty, and does not introduce bias by ignoring the effects of adaptation. The assessment does represent the effects of different socioeconomic futures on impact, and does explain the key sources of uncertainty. The indicators of impact used in the assessment either take adaptation into account (food security, coastal flooding) or represent exposure to impact, and hence indicate a demand for adaptation if impacts are to be avoided.
Response to Carter et al.
John F. Mitchell, Julia Slingo, David S. Lee, Jason A. Lowe & Vicky Pope, World Economics, March 2007
This article has been written at the initiative of UK climate scientists, from both the academic sector and the Hadley Centre for Climate Prediction and Research, in response to an article in the previous issue of World Economics by Carter et al., which was part of a ‘Dual Critique’ of the Stern Review of the Economics of Climate Change. The criticisms of Carter et al. concerning the Stern Review’s presentation of the climate science have been challenged and found to seriously misrepresent the current state of knowledge. Furthermore, the latest Report of the Intergovernmental Panel on Climate Change, whose Summary for Policy Makers was published in February 2007, vindicates the approach used in the Stern Review. The authors show in this paper that the Stern Review did not use an exaggerated response to increases in greenhouse gases nor did it overstate the certainty with which current warming can be attributed to human activities. They therefore conclude that the findings of the Stern Review with respect to the science of climate change are fundamentally sound and form a proper basis for the subsequent analysis of economic risk.
The Stern Review and the Costs of Climate Change Mitigation: A response to the ‘Dual Critique’ and the misrepresentations of Tol and Yohe
Dennis Anderson, World Economics, March 2007
Responding to the ‘Dual Critique’, and the Tol and Yohe paper in the previous issue of World Economics, Professor Anderson counters a number of assertions made in those papers including the claims that the Stern Review is ‘alarmist’ or scaremongering, biased in its estimates and was not reviewed by peers. He points to a number of areas where the authors either got it wrong or seriously misrepresented the Review.
Ethics of the Discount Rate in the Stern Review on the Economics of Climate Change
Wilfred Beckerman & Cameron Hepburn, World Economics, March 2007
Any comparison of the costs and benefits of climate change is dominated by the chosen discount rate. But, although the Stern Review emphasises the ethical nature of the parameters entering into its choice of a relatively low discount rate, its discussion of the ‘pure time preference’ parameter is unbalanced. In particular, no consideration is given to the role of ‘agent-relative ethics’, which (i) has a wellestablished philosophical pedigree going back to David Hume; (ii) is likely to correspond closely to world-wide public attitudes towards intergenerational welfare; and (iii) would entail discounting a unit of welfare accruing to future generations compared to an equal unit accruing to people alive today at a positive rate. The authors also discuss the other ethical parameter upon which the discount rate depends, namely the elasticity of marginal utility with respect to consumption. In the conventional model, this simultaneously reflects different aspects of inequality aversion as well as risk aversion, which complicates its interpretation. Finally, they discuss the divergence between market rates of discount and the low rate chosen in the Review, and the limitations—on the one hand—on the normative significance of market rates, as well as the danger—on the other hand—of relying on rates chosen by elites or philosopher kings.
REFLECTIONS ON THE STERN REVIEW (2) A Growing International Opportunity to Move Strongly on Climate Change
Lorraine Hamid, Nicholas Stern & Chris Taylor, World Economics, March 2007
This paper highlights the basic economic principles behind the policy recommendations in the Stern Review and takes forward the analysis and proposals of the Review. It is written in the light of developments since the Review was published, reflecting on interaction with policy makers and analysts around the world and other commentators on the Review. Its authors argue that across the world, progress of understanding and developing the necessary policy response to climate change has been especially rapid in the last few months. Building on these developments and the Review team’s initial analysis, they outline a policy programme going forward for international collective action to tackle climate change.
REFLECTIONS ON THE STERN REVIEW (1) A Robust Case for Strong Action to Reduce the Risks of Climate Change
Simon Dietz, Chris Hope, Nicholas Stern & Dimitri Zenghelis, World Economics, March 2007
Those who deny the importance of strong and urgent action on climate change essentially offer one of, or a combination of, the following arguments. First, there are those who deny the scientific link between human activities and global warming; most people, and the vast majority of scientists, would find that untenable given the weight of evidence. Second, there are those who, while accepting the science of anthropogenic climate change, argue that the human species is very adaptable and can make itself comfortable whatever the climatic consequences; given the scale of the outcomes that we now have to regard as possible or likely under business-as-usual (BAU), this must be regarded as reckless. Finally, there are those who accept the science of climate change and the likelihood that it will inflict heavy costs, but simply do not care much for what happens in the future beyond the next few decades; most would regard this as unethical. This paper deals primarily with the latter two arguments. An appendix addresses confusions and misconceptions about The Stern Review and responds to points made by critics in previous issues of this journal and elsewhere.
Addressing Climate Change: Is there a role to be played by the IMF?
Peter S. Heller, World Economics, March 2007
Global climate change has moved high on the agenda of key policy makers in many industrial countries. As a “global public good,” a coordinated global response in terms of efforts at mitigation will be critically necessary. Equally, many countries will face serious economic harm in the absence of adaptation efforts. As one of the key global institutions with responsibility for global economic stability and growth, this paper argues that climate change should be on the economic surveillance agenda of the International Monetary Fund, with the focus principally on the macroeconomic implications. While the IMF’s role would be necessarily limited, the paper raises questions about the adequacy of the financing and organization of current global coordination mechanisms to address climate change.
How Can Norway Become A Climate-Friendly Society?
Jørgen Randers & Knut H. Alfsen, World Economics, March 2007
In March 2005, the Norwegian Government appointed a seven-person expert Commission on Low Emissions and asked it to describe how Norway could cut its greenhouse gas emissions by about two–thirds below its Kyoto obligation, by 2050. The Commission delivered its unanimous recommendation in October 2006 (NOU 2006:18 Et klimavennlig Norge—Norwegian White Paper No. 18, 2006: A climate-friendly Norway) which states that such cut is not only necessary, but also feasible and not unreasonably expensive. In its report, the Commission proposed a package of 15 measures to achieve such steep cuts by 2050, largely within Norwegian territory, and indicated what must be done in the short term to start moving towards this goal. This paper summarizes the Commission’s report.
A Review of the Stern Review
Richard S. J. Tol & Gary W. Yohe, World Economics, December 2006
The Stern Review on the Economics of Climate Change was published on 30 October 2006. In this article Richard Tol and Gary Yohe, while agreeing with some of the Review’s conclusions, disagree with some other points raised in the Review and they address six issues in particular: First, the Stern Review does not present new estimates of either the impacts of climate change or the costs of greenhouse gas emission reduction. Rather, the Stern Review reviews existing material. It is therefore surprising that the Stern Review produced numbers that are so far outside the range of the previous published literature. Second, the high valuation of climate change impacts reported in the Review can be explained by a very low discount rate, risk that is double-counted, and vulnerability that is assumed to be constant over very long periods of time (two or more centuries). The latter two sources of exaggeration are products of substandard analysis. The use of a very low discount rate is debatable. Third, the low estimates for the cost of climate change policy can be explained by the Review’s truncating time horizon over which they are calculated, omitting the economic repercussions of dearer energy, and ignoring the capital invested in the energy sector. The first assumption is simply wrong, especially since the very low discount rates puts enormous weight on the other side of the calculus on impacts that might be felt after the year 2050. The latter two are misleading. Fourth, the cost and benefit estimates reported in the Stern Review do not match its policy conclusions. If the impacts of climate change are as dramatic as the Stern Review suggests, and if the costs of emission reduction are as small as reported, then a concentration target that is far more stringent than the one recommended in the Review should have been proposed. The Review, in fact, does not conduct a proper optimization exercise. Fifth, a strong case for emission reduction even in the near term can nonetheless be made without relying on suspect valuations and inappropriate summing across the multiple sources of climate risk. A corollary of this observation is that doing nothing in the short term is not advisable even on economic grounds. Sixth, alarmism supported by dubious economics born of the Stern Review may further polarize the climate policy debate. It will certainly allow opponents of near-term climate policy to focus the world’s attention on the estimation errors and away from its more important messages: that climate risks are approaching more quickly than previously anticipated, that some sort of policy response will be required to diminish the likelihoods of the most serious of those risks, and that beginning now can be justified by economic arguments anchored on more reliable analysis. These six points are discussed in separate sections before the authors reach their conclusion.
The Stern Review: A Dual Critique

World Economics, December 2006
The Stern Review, described as the most comprehensive review ever carried out on the economics of climate change, was published on 30 October 2006. The twin papers from a combined team of scientists and economists present a critique in two parts of the Stern Review. Part I focuses on scientific issues and their treatment in the Review. It forms the point of departure for Part II which deals with economic aspects. Each paper has its own list of authors. In relation to both scientific and economic issues, the authors question the accuracy and completeness of the Stern Review’s analysis and the objectivity of its treatment. They conclude that the Review fails to present an accurate picture of scientific understanding of climate change issues, and will reinforce ill-informed alarm about climate change. Two interrelated features of the Stern Review are that it greatly understates the extent of uncertainty as to possible developments, in highly complex systems that are not well understood, over a period of two centuries or more; and its treatment of sources and evidence is persistently selective and biased. These twin features have combined to make the Review a vehicle for speculative alarmism. In the judgement of the authors of the Dual Critique, the Stern Review mishandles data; gives too little attention to actual observation and evidence, as distinct from the results of model-based exercises; and takes no account of the failures of due disclosure, and the chronic limitations of peer reviewing, that have been characteristic of work relating to climate change which governments have commissioned and drawn on. As to specifically economic aspects, the authors note among other weaknesses that the Review systematically overstates projected costs of climate change, partly though by no means wholly as a result of its failure to acknowledge the scope for long-term adaptation to possible global warming; underestimates the likely cost—including to the world’s poor—of the drastic global mitigation programme that it calls for; and proposes worldwide adoption of a specially low rate of interest for discounting the costs and benefits of mitigation, on the basis of inadequate analysis and without regard for the problems and risks that would result. So far from being an authoritative guide to the economics of climate change, the Stern Review is deeply flawed. It does not provide a basis for informed and responsible policies.
Comment
The ‘climate change’ debate: S. Fred Singer responds to the exchange, in the previous issue, between Nicholas Stern and Ian Byatt et al.
World Economics, September 2006
There is no summary available for this paper.
Reply to Byatt et al. by Nicholas Stern

World Economics, June 2006
There is no summary available for this paper.
What is the Economics of Climate Change?
Sir Nicholas Stern, World Economics, June 2006
A major review of the economics of climate change under the leadership of Professor Sir Nicholas Stern was announced at the end of July 2005, reporting to the United Kingdom’s Chancellor of the Exchequer and to the Prime Minister. The Stern Review on the Economics of Climate Change is due to report in autumn 2006. This article sets out some of the issues the review is considering.
Natural Resource-Based Economic Development in History
Edward B. Barbier, World Economics, September 2005
The role of natural resources in fostering economic development is examined for key historical epochs, from the agricultural revolution in 8,000 BC to the present. Natural resource exploitation has been important to development for most of global history. Depending on which epoch is examined, resource-based development could be viewed as “successful” and sometimes not. Simply because a developing economy or region was endowed with abundant natural resources does not guarantee that its natural wealth is exploited efficiently and generates productive investments. Institutional factors also matter, and environmental conditions may also determine whether or not countries develop “good” institutions.
The Costs of Mitigating Climate Change
Dennis Anderson & Matt Leach, World Economics, September 2005
The paper reviews analyses of the costs of mitigating climate change and discusses the implications for policy. The estimated effects of reducing carbon emissions by 40%–60% over the next half century range from –1.0% to 4.5% of world product, averaging 2½%. This would be small in relation to the growth of economic output over the period, which is likely to be several hundred percent higher than it is today. The main reason why the estimated effect is small is innovation: a large number of carbon-neutral technologies and practices is available or emerging that are capable of significant further development. An initiative focussed on encouraging innovation and the diffusion of new energy technologies and practices across countries would provide a new direction for international cooperation based on already significant national policies in many countries.
Paradoxes in Biodiversity Conservation
David Pearce, World Economics, September 2005
Biodiversity is important for human wellbeing, but it is declining. Measures to conserve biodiversity are essential but may be a waste of effort if several paradoxes are not addressed. The highest levels of diversity are in nations least able to practise effective conservation. The flow of funds to international biodiversity conservation appears trivial when compared to the scale of biodiversity loss. International agreements may not actually protect or conserve more than what would have been conserved anyway. Protected Areas may be ‘paper parks’, protected in name but not in practice. The very act of protection may contain self-destructive features because local communities can easily suffer loss of income and assets, making them unwilling partners in the act of protection. In turn, this places the protected area at risk and may also divert unsustainable harvesting activities to non-protected but equally diverse ecosystems. In tackling these issues the real biodiversity challenge is redesigning conservation effort, making it truly additional and making it compatible with poverty reduction.
The Nature of Corruption in Forest Management
Charles Palmer, World Economics, June 2005
Corruption is a well-documented and common feature of natural resource management in the developing world. This article investigates the nature of corruption and whether or not there is such a thing as a ‘tolerable’ level of corruption, particularly where there is an established culture of patronage. Using the log trade in Indonesia as a study in rent-seeking transactions, this article shows that a failure to account for the incentives underlying rent-seeking undermines forest policy. Also, attempts to eliminate corruption are doomed to failure. Instead, policymakers should seek to understand the nature of corruption in seeking to move from rent creation to wealth creation.
Does European Union Environmental Policy Pass a Cost–Benefit Test?
David Pearce, World Economics, September 2004
Most European Union countries are committed to some form of regulatory impact assessment, and in some cases these assessments involve the formal use of cost–benefit analysis. The European Treaty of Union also calls for a comparison of costs and benefits for all European regulations. Despite this, only a limited number of regulations have been subject to cost–benefit analysis. Using a variety of sources, this paper investigates whether or not a selection of major environmental regulations would pass a cost–benefit test. The general answer is that, while some do, most do not. This finding has major implications for the efficiency of European environmental legislation, and reflects on the willingness of Member States to sign up to inefficient regulation.
The Morality of Market Mechanisms to Control Pollution
Wilfred Beckerman & Joanna Pasek, World Economics, September 2003
The use of pollution charges or tradeable permits to reduce pollution has been condemned by many environmentalists and some philosophers on the grounds that (i) pollution is inherently immoral; (ii) environmental assets are not appropriately valued in monetary terms; and (iii) the sale of ‘environmental indulgencies’ is inequitable since it unfairly favours the rich. In this article it is argued that all these arguments are invalid.
The Economics of the Kyoto Protocol
Michael Grubb, World Economics, September 2003
This paper surveys economic aspects of the Kyoto Protocol, the Treaty adopted to control emissions of the greenhouse gases that contribute to climate change. The first part focuses upon the structural aspects of the agreement, with particular attention to the long-term conception of the Treaty and its use of market-oriented instruments unprecedented in an international treaty of this scope. The second part then examines the actual commitments adopted for the first period, and the impact of US withdrawal upon the economics of these commitments as mediated through the ‘flexible mechanisms’. It is noted that the emerging behaviour of states under Kyoto is very different from that assumed in economic modeling studies—countries are focusing first upon domestic action and will resort to the mechanisms mainly as a fallback option to secure compliance, not as a route to minimizing costs irrespective of other considerations. This may have important implications for understanding the practical economics of designing international market mechanisms, and for the next steps that might be considered under Kyoto.
Towards a Better Climate Treaty
Scott Barrett, World Economics, June 2002
The Kyoto Protocol is an example of how not to construct a treaty. Negotiators began by focusing on the short term, agreeing that the industrialized countries should cut their emissions of greenhouse gases by about 5% relative to 1990 by 2008–2012. Then they agreed that these cuts should be achieved cost-effectively, incorporating ‘flexible mechanisms’. Only later did they worry about whether the treaty created incentives for broad participation and full compliance. Negotiators should have approached things the other way around. They should have begun by thinking of how they could achieve both broad participation and full compliance, and of how they could reduce emissions in the long term. Had they done so, a better, more effective treaty would have been negotiated. In this essay the author explains why Kyoto is unlikely to succeed in mitigating climate change. He also proposes an alternative treaty design that is likely to work better.
Economists and Sustainable Development: The OECD Report on Policies for Sustainable Development
Wilfred Beckerman, World Economics, December 2001
The OECD report is almost exclusively about environmental policy (on which it contains a mass of useful data and discussion). There is, commendably, hardly any discussion of the implications of the usual core condition in consensus definitions of sustainable development, namely that there should be no future decline in per capita welfare. Economists would also do well to ignore this condition, and hence the problem of a possible conflict between optimality and sustainability. And, insofar as it is believed that there is a conflict, we should opt for optimality since the ethical grounds for not doing so—e.g. that pure time preference over generations is unethical or that we have to respect the rights of future generations—are weak. A second major omission is more serious and is the report’s failure to get to grips with crucial constitutive and instrumental components of sustainable development, notably civil and political liberties.
How Much Damage Will Climate Change Do?: Recent estimates
Richard S.J. Tol, Samuel Fankhauser, Richard G. Richels & Joel B. Smith, World Economics, December 2000
Two reasons to be concerned about climate change are its unjust distributional impact and its negative aggregate effect on economic growth and welfare. Although our knowledge of the impact of climate change is incomplete and uncertain, economic valuation is difficult and controversial, and the effect of other developments on the impacts of climate change is largely speculative, the authors find that poorer countries and people are more vulnerable than are richer countries and people. A modest global warming is likely to have a net negative effect on poor countries in hot climates, but may have a net positive effect on rich countries in temperate climates. If one counts dollars, the world aggregate may be positive. If one counts people, the world aggregate is probably negative. Negative impacts would become more negative, and positive impacts would turn negative for more substantial warming. The marginal costs of carbon dioxide emissions are uncertain and sensitive to assumptions that partially reflect ethical positions, but are unlikely to be larger than $50 per tonne carbon.
Biodiversity in the Marketplace
Geoffrey Heal , World Economics, December 2000
What is the nature of biodiversity as an economic commodity and why does it matter? How would its conservation contribute economically to our well-being? In this article, Geoffrey Heal considers three issues: Why is biodiversity important from an economic perspective? What kind of commodity is it? Does our usual economic mechanism, the market system, have the capacity to appreciate the economic value of biodiversity? The author first tries to characterize biodiversity from an economic perspective, and then considers the capacity of our main economic institutions to realize the value of biodiversity and ensure that it is treated in a way commensurate with its importance.
Why Did the Protected Areas Fail the Giant Panda?: The economics of conserving endangered species in developing countries
Timothy M. Swanson & Andreas Kontoleon, World Economics, December 2000
Most biodiversity lies within the developing world, and much of it is under threat because of forces for change within these countries. In order to be effective, biodiversity conservation must be viewed as a development opportunity, rather than as a constraint on development. This implies management for the purpose of harnessing all of the values of biodiversity and the organization of national management to make this possible. This general proposition is illustrated in a case study demonstrating how one celebrated species, the Giant Panda, is able to generate substantial flows of revenues, thereby creating the incentives for the conservation of its own habitat. The study focuses on the Wolong Panda Reserve, one of the most important panda reserves, located in Sichuan Provinces China. The study demonstrates that the proper management of the Giant Panda Reserves in Sichuan province should be able to generate an estimated $100 million per annum for the Wolong Reserve. This stands in contrast to the $250 thousand currently being allocated to reserve management. If a small proportion of this value were appropriated and then channeled to the local peoples, this would dramatically alter the incomes of hee local communities and their perceptions of the value of the Giant Panda and its reserves. The “opportunity cost” of allowing the continuing demise of the species, by reason of the continuation of conflicting uses and activities within the Reserve, is the loss of these natural values.
Can Agriculture Become an Environmental Asset?
Daniel W. Bromley, World Economics, September 2000
Traditional treatments see agricultural practices as inimical to many environmental attributes in rural areas. In the policy arena, farmers and environmentalists often clash over land-use practices, crop monoculture, animal wastes, and the application of chemicals – the residues of which are said to contaminate the environment and threaten human well-being. The existence of agricultural abundance in the OECD countries provides an opportunity to rethink old beliefs and attitudes, as well as to reformulate traditional policy approaches to agriculture-environment interactions. This requires seeing agriculture as a land-management activity, with production of food and fibre taking a secondary role. Economic incentives and property rights issues will require reconsideration.
Market-based Instruments: If they’re so good, why aren’t they the norm?
Tannis Seccombe-Hett, World Economics, September 2000
Economists have long recommended market-based instruments for efficient environmental policy-making – taxes, tradable permits, auctions of property rights, etc. So why is progress on them so slow? The reality is that any environmental policy faces many political, institutional and technical obstacles, but market-based instruments face more than most. Many relate to false perceptions, although some are real. Most have solutions, some do not.
Technical Progress and Global Warming: The case for a technology policy
Dennis Anderson, World Economics, September 2000
The case is argued for a larger and more explicit role for technology policies in responding to climate change. Policies and institutions set up during the Cold War arms race could be reformed and redirected towards the goal of making renewable energy a viable competitor to carbon-emitting fuels. Putting more resources into such projects would not only reduce their cost through economies of scale and scope, but could raise the possibility of a technological shock which meant that the cost of transition to “non-net-carbon-emitting” technology could actually be negative. Anderson argues that in any case the transition costs would probably be small, and that the process would be to the advantage of developing countries, who typically have a five to one cost advantage over the developed world in non-carbon-emitting energy production.
Save the Planet: Sell Carbon
David Pearce, World Economics, September 2000
This article examines the political economy of agreements on global greenhouse emissions reduction. The author explains the complex emissions trading mechanisms set up under the 1997 Kyoto Protocol and considers the likely size and structure of a future market for emissions credits.
Re-thinking Economic Progress
Giles Atkinson, World Economics, March 2000
Most national governments have pledged a commitment to sustainable development. The transformation of these pledges into policy is a formidable challenge. Of particular interest are proposals for the construction of green alternatives to Gross Domestic Product (GDP), which it is hoped will provide policy-makers with a consistent and summary signal of "true" trends in the economy both now and into the future. This paper reviews the green accounting debate over the past decade. the author argues that, while initial expectations have, at times, been overstated, there are encouraging signs for policy-makers attempting to make sense of their commitments to sustainable development. One such indication is the increasing emphasis on improved measures of saving, providing a better link between actions in the present and their implications for the future.