1 Yale Symposium on the Stern Review Yale Center for the Study of Globalization February 2007 2 Yale Symposium on the Stern Review Table of Contents Part 1: Presentation of the Stern Review Introduction Page 5 Ernesto Zedillo, Director, Yale Center for the Study of Globalization Chapter 1: Findings of the Stern Review on the Economics of Page 7 Climate Change Sir Nicholas Stern, UK Government Why Bother About Climate Change? The Economics of Climate Change Analytical Framework of the Stern Review Policy Issues Conclusion Chapter 2: PAGE Modeling System Page 40 Chris Hope, University of Cambridge Chapter 3: Question and Answer Page 61 Chapter 4: Closing Remarks Page 68 J. Gustave Speth, Dean, Yale School of Forestry and Environmental Studies Part 2: Comments on the Stern Review Chapter 5: William Nordhaus, Yale University Page 71 Opposite Ends of the Globe Areas of Agreement and Disagreement Review, Reproducibility, and Modeling The Discounting Controversy Economic Modeling With Low Discount Rates Summary Verdict 3 Chapter 6: William Cline, Peterson Institute for International Economics, Center for Global Development Page 78 My Earlier Results The Discount Rate How Rapidly Does Marginal Utility Drop Off? When to Act? Conclusion Chapter 7: Gary Yohe, Wesleyan University Page 87 Chapter 8: Robert Mendelsohn, Yale University Page 93 Chapter 9: Scott Barrett, Johns Hopkins University, Paul H. Nitze School of Advanced International Studies Page 104 Chapter 10: Jeffrey Sachs, Columbia University Page 111 Chapter 11: Reaction to the Panelists: Sir Nicholas Stern Page 117 The Role of Integrated Assessment Models in Policy Analysis Ethics Alternative Strategies and the Structure of Risks Social costs of carbon and radical policy “Political constraints” and peer review Additional points Conclusions Response to Scott Barrett and Jeffrey Sachs Chapter 12: Panelist Responses Page 131 Chapter 13: Final Comments Page 136 Chapter 14: Concluding Remarks Page 141 Ernesto Zedillo 4 Yale Symposium on the Stern Review Participants Scott Barrett Director, International Policy Program; Professor of Environmental Economics, Johns Hopkins University, School of Advanced International Studies; Yale Center for the Study of Globalization Distinguished Visiting Fellow, 2006 William Cline Senior Fellow, Peterson Institute for International Economics and Center for Global Development; YCSG Distinguished Visiting Fellow, 2007 Chris Hope Judge Business School, University of Cambridge Robert Mendelsohn Edwin Weyerhaeuser Davis Professor, Yale School of Forestry and Environmental Studies; Professor of Economics; Professor, Yale School of Management William Nordhaus Sterling Professor of Economics; Professor, School of Forestry and Environmental Studies, Yale University Sir Nicholas Stern H.M. Treasury, Government of the United Kingdom Jeffrey Sachs Director, Earth Institute, Columbia University Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management J. Gustave Speth Dean, Yale School of Forestry and Environmental Studies Sara Shallenberger Brown Professor in the Practice of Environmental Policy Gary Yohe Woodhouse/Sysco Professor of Economics, Wesleyan University Ernesto Zedillo Director, Yale Center for the Study of Globalization Professor in the Field of International Economics and Politics; Adjunct Professor of Forestry and Environmental Studies, Yale University 5 Introduction Ernesto Zedillo Participants at the January 2007 World Economic Forum annual meeting voted climate change to be not only the issue that will have the greatest global impact in coming years but also the one for which the world is least prepared. I voted differently, since I am more worried about other threats to humanity, such as nuclear weapons and the persistence of abject poverty in many parts of the world. But I admit that the Davos vote reveals how the issue of climate change has come to capture the attention that not too long ago it failed to have. This shift in public opinion is increasingly putting more pressure on governments to implement policies for mitigating and adapting to climate change. Of course, I want to think that this enhanced interest in human-induced climate variability is not purely a temporary fad triggered by a cinematic tour de force. We should all be hopeful that the general public, and certainly opinion leaders, are really convinced now that they need to be much better informed about the phenomenon of climate change. This circumstance alone would make political leaders more open and accountable to discussing the issue and, of course, its policy implications. I am convinced that a large proportion of the serious academic analysis and policy discussions on climate change that we have witnessed over recent months were triggered by the publication on October 30th 2006 of The Stern Review on the Economics of Climate Change. Fortunately, the Review has reignited the debate and rigorous study of the economics of climate change. Moreover, we have even seen experts from other areas of economic analysis bringing their tools into the discussion of this significant problem. Indeed, we should all be thankful to Sir Nicholas Stern, who, in 2005, was asked by the Chancellor of the Exchequer of the British government to head a group to produce this report. Nicholas Stern very quickly assembled a great team of experts, and undertook to visit a number of universities and institutions to consult about this topic. In a relatively short period of time, Sir Nicholas and his team were able to produce their report, this document, which not only has enormous value by itself -- academic and 6 political value; but it also has value, I insist, because it has motivated other people to come out with new opinions, new analysis and fresh positions on this fundamental question. In the spring of 2006, I had the pleasure of meeting with Sir Nicholas and members of his team on a visit they made to Yale University. At that time, he expressed his willingness to present the Review here at Yale, under the auspices of the Center for the Study of Globalization. His interest was in participating in an academic analysis of its findings with scholars of the highest reputation in this field. This event is the realization of that conversation. We welcome Sir Nicholas and his team with gratitude and recognition for their immensely valuable work. Our event is divided into two parts. This morning we will have the opportunity to listen to Sir Nicholas and his team making a presentation of the report. For this session, we are also privileged to have Chris Hope from Cambridge University who is the leading author of the PAGE model. This model was used extensively in the preparation of the Review. We sincerely thank Chris for making the journey from Cambridge and for his important contributions in this field. We are also honored to have Dean Gustave Speth of our School of Forestry and Environmental Studies who will have the last word in this morning's session. For the afternoon, we have assembled an impressive group of scholars who will make a review of the Review in the presence of Sir Nicholas himself. The afternoon session will be completed with a discussion between Sir Nicholas and his reviewers. We thank William Nordhaus, William Cline, Gary Yohe, Robert Mendelsohn, Scott Barrett and Jeffrey Sachs. Needless to say, these authors’ contributions are an essential part of this symposium. I will now call Sir Nicholas Stern to present to us his impressive Review. 7 Chapter 1: Findings of the Stern Review on the Economics of Climate Change Sir Nicholas Stern In June 2005 the Chancellor of the Exchequer, Gordon Brown, asked me to conduct a review of the economics of climate change. This was not to be like the reviews that I and many of you have done of academic literature, in which you try to put a whole literature in perspective, give it a structure, and try to be exhaustive and fair to everybody who’s contributed to that literature. Our task was to produce a different kind of review—one that would help people involved in policymaking come to a view on what would be a sensible way forward, given what we now know. So, it’s a review that speaks to policy, and is mostly about policy. To make suggestions about policy, you have to come to a view on what kinds of things should be done. In the case of climate change, how strong should the action be? How urgent is it? Those questions are the first steps, and then you look to what kind of policy tools can steer you in a sensible direction. Thus the review has two halves: the first is about what kinds of actions are necessary in the face of climate change, on what scale, and when, and the second half looks at the details of policy design. I’m guessing that the participants here today are going to take the modeling side of the Review quite seriously, so I want to talk about that, too. But as all modelers should know, formal modeling is only one part of the argument and one part of the contribution of economics. Thus I hope that in the discussion we can get into the policy issues more deeply. Why Bother About Climate Change? First it is worth thinking about why one should bother about climate change at all. I have to say that I came to this question in July 2005 with a very open mind. I knew what the greenhouse gas effect was, but I hadn’t thought through, or been closely involved in discussions of, what might be sensible policies to approach it. Three reasons are advanced for why one can relax and forget about climate change. I think they are fundamentally misguided, but it’s important to recognize them. One is that the science is all wrong, that global warming is “the biggest hoax ever 8 perpetrated on mankind,” similar to how one US senator has described it.