The Climate Crisis as seen by the economics mainstream
Mainstream economics frames the climate crisis in a particular way but this approach is not at all helpful. There have been a variety of controversies which show clearly how economists think – like the “price of a life” controversy. The findings of the Stern Review were widely quoted but how were they calculated? Much of the controversy about the Stern Review among economists was about the discount rate to be applied to future projections. These issues are explained.
Although the effects of climate change seem to be near to apocalyptic over the long term, over the
short term taking signficant action to cut emissions also appears to be a tremendous challenge. The magnitude of this challenge is indicated by a statement in the Stern Review of the Economics of Climate Change: “Experience suggests that it is difficult to secure emission cuts faster than 1% per year except in instances of recession…” (Stern, 2006, p. 231)
When the Soviet Union was wound up the Russian economy collapsed. Between 1989 and 1998, fuel related emissions fell in that country by 5.2% per annum because economic activity halved. However, this was no model to copy. It was a period of deep crisis. The death rate, particularly among young Russian men, soared. (Stern, 2006, p. 232)
This brings us to the climate policy response so far, or the lack of it, and how mainstream economists frame the climate debate.
• Any policies have to be consistent with growth
• Optimal policies are supposed to be based on cost benefit calculations in which gains and losses
for different people through time are held to be commensurable in money terms
• An appropriate discount rate must be charged when making policy calculations
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