25 September 2009

Nicholas Stern's "New" Climate Policy

UPDATE: Nicholas Stern's spokesman, Bob Ward, shows up in the comments. Have a look.

Nicholas Stern, of the UK Stern Review Report fame/infamy, has published a paper outlining a "new" approach to climate policy (here in PDF). I put "new" in quotes because Lord Stern has adopted many on the most important recommendations that my colleagues and I have been making for several years now. But make no mistake, the approach outlined by Stern is his new paper is a radical departure from that which he espoused following publication of the Stern Review and much more (though not entirely) consistent with the recommendations that I and my colleagues have been making for several years now.

For instance, Stern accepts the need to look at the challenge of stabilization not as an emissions reduction challenge, requiring the use of a counterfactual baseline, but in terms of absolutes:
Thus we propose an approach of using absolute numbers rather than framing targets as a percentage reduction on a particular base year. Absolute numbers are preferable to percentages for two reasons: they allow us to keep a check on the basic arithmetic of the targets (so that they ‘add up’) and they avoid having to argue a theoretical reference baseline for percentages.
This of course was one of the core recommendations of Pielke, Wigley and Green (2008).

Next, Stern has discovered the simple arithmetic of emissions reductions via the Kaya Identity, both of which have been central to our work over the past few years:
If these emission targets are to be met without affecting the ambitions for growth in developing countries, it is evident that the emission intensity of output will need to change drastically over the next decades. This is a clear and fundamental conclusion from what we might call the ‘brutal arithmetic’. If we want to achieve both the strong emissions targets and the desires for growth then simple arithmetical logic requires a large fall in emissions per unit of output. In other words we must break the link between emissions and output. . . unless the USA, EU/Japan, Indonesia/Brazil and China reduce emissions per unit of output by a factor of 4 over the next 20 years, it will not be possible to grow at the desired rates and to reach the emission goals that sensible risk management requires. . . It is important to notice that the targets I have just described, and the implications they have in terms of reductions in emission intensity, have nothing to do with equity: they are just simple arithmetic based on what the science tells us on risk.
All of these concepts and ideas can be found in Prins et al. (2009), among other places. Prins is on the LSE faculty with Stern, so it would be no surprise to see fertile ideas taking root.

Whether Stern was actually inspired by these earlier works is less important that the fact that it seems that a more realistic approach to climate policy is taking hold in the mind of one of the issues most influential public intellectuals. And that is the best news on climate policy I've seen in a while.


  1. An interesting pair of posts. Stern goes off the reservation just as Krugman reinforces the walls. I wonder what caused Stern to jump. I took him to be a Labour stooge - perhaps now that Labour is in total disarray in the UK, he sees less value in carrying water for them.

    The Stern Report, as I understood it: "The world is coming to an end, we have to remake the planetary industrial civilization. And oh yes, we can do it for pence on the pound. And there's the rub - the more they need to exaggerate outcomes, the greater the cost to do something about then. The greater the cost, the less the people will be willing to bear them.

  2. Roger, it is good to see you welcome Nick Stern's new paper, but I should point out that while his framing of the issues is slightly more starker in his new paper, it contains many of the same basic ideas that he has been promoting for a while. For instance, you will see that the two main points you have highlighted were essentially contained in this paper (http://www.lse.ac.uk/collections/granthamInstitute/publications/Key%20Elements%20of%20a%20Global%20Deal%20-Final%20version%201300%2030-4.pdf) which he published in April last year. Maybe you and your colleagues have been influenced by his earlier work? In any case, it is good that he has the support of a wide and varied group of respected researchers.

  3. -2-Bob

    Thanks for dropping by.

    You are correct that the framing of these issues is indeed much starker in the new draft, because in the older paper he writes things like:

    "We also use the Kyoto Protocol baseline year of 1990 when proposing emissions reductions
    targets for all countries. . . Effective action requires . . . Agreement by developed countries to take on immediate and binding national targets of 20% to 40% by 2020, and to commit to reductions of at least 80% by 2050"

    This is very hard to square with what he now says:

    "we propose an approach of using absolute numbers rather than framing targets as a percentage reduction on a particular base year."

    Whether it is an issue of clarity or a reframing, kudos to moving in the direction of getting climate policy back on course. Next you'll want to reconsider that commitment to carbon trading;-)

  4. A good politician has an antenna for the reception of changing of minds ;)

  5. Some background on Stern. His employer is unsurprisingly (to me) an investment banker.

    Grantham Institute for Climate Change

    In fact, it (Grantham) refers to the wealthy chairman of GMO, a large investment management company: Jeremy Grantham. Grantham has donated £12million to the London School of Economics (LSE) to fund the institute. He has also forked out another £12million to Imperial College London for the similarly named Grantham Institute for Climate Change (1)

    No wonder, then, that the chair of LSE, Howard Davies – once the head of the Financial Services Authority and a former deputy governor of the Bank of England – was more than a little fawning over the ‘extremely generous’ Grantham. The new LSE institute will be headed by Lord Nicholas Stern, author of the UK government-commissioned report.


    Jeremy Grantham

    Jeremy Grantham is the Chairman of the Board of Grantham Mayo Van Otterloo, an American investor well known among institutional investors, but relatively unknown to retail investors. He is regarded as a highly knowledgeable investor in various stock bond and commodity markets. Grantham started one of the world's first index funds in the early 1970s and currently manages approximately $120 billion US.[