A Mainstream Economic Perspective of the Climate Change Crisis
Mainstream economists have been working on the climate change problem since the early-1990s. Their approach effectively amounts to determining how much we should cut greenhouse gas emissions to reduce the negative impacts of anthropogenic global warming. To make such a determination, mainstream economists advocate the deployment of a benefit-cost analysis, which is essentially a means of comparing the benefits and costs of different emissions trajectories. Despite mainstream agreement regarding the use of a benefit-cost analysis, there is considerable disagreement about how the benefits and costs should be estimated. To explain the nature of the disagreement, this chapter focuses on the approach and subsequent conclusions of the Stern Review, a mainstream economic document on climate change that was released with great fan-fare in late-2006. The main conclusion of the Review is that at least one per cent of Gross World Product (GWP) must be invested each year to prevent climate change damage costs equivalent to the annual loss of 5-20 per cent of GWP, now and forever. Because the estimated benefits of mitigation far exceed the costs, Stern has also argued for immediate and decisive action to reduce global emissions by at least 25 per cent by 2050. The major concern that ecological economists have with the Stern Review and similar mainstream reports is their heavy reliance upon the conclusions drawn from a benefit-cost analysis when, as ecological economists argue, a so-called ‘least-cost’ greenhouse target need not lie within the range of ‘safe’ concentration levels (i.e., one that is at or below 450 ppm of CO2-e). Ecological economists therefore reject the use of a benefit-cost analysis as a dominant form of climate change investigation. Despite this, ecological economists believe that much can be learned from examining the source and evolution of mitigation costs and climate change damage costs, since the process can provide valuable insights into probable mitigation responses and how humankind might adjust over time to a gradual tightening of emissions caps.