Comments on the Stern Review

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Comments on the Stern Review
AIM Team
National Institute for Environmental Studies

February 2007

Members from Asia-Pacific Integrated Modeling (AIM) team and National Institute forEnvironmental Studies (NIES) involved in preparing this document:
National Institute for Environmental Studies
Director: Dr. S. Nishioka
Impact assessments: Dr. H. Harasawa, Dr. K. Takahashi, Dr. Y. Hijioka,
Dr. N. Hanasaki
Emission assessments：Dr. M. Kainuma, Dr. T. Masui, Dr. J. Fujino,
Dr. T. Hanaoka, Dr. S. Ashina
Economics：Dr. A. Hibiki, Dr. A. Okagawa
International law & politics：Dr. Y. Kameyama、Dr. I. Kubota
Kyoto University
Prof. Y. Matsuoka, Asst. Prof. R. Kawase, Ms. Y. Nishimoto
Mizuho Information & Research Institute
Mr. G. Hibino, Ms. M. Miyashita, Mr. T. Ehara

Comments on the Stern Review
Background and Assessment of the “Stern Review”
1. Introduction
In relation to the on-going Japan-UK Joint Research Project “Developing Visions for a Low
Carbon Society through Sustainable Development,” we, the Asia-Pacific Integrated Modeling(AIM) team and the National Institute for Environmental Studies (NIES), were requested toprovide research inputs to the Stern Review. We have been collaborating by providing research
results since the beginning of the Stern Review in 2005. Upon publication of the Review in
October 2006, members of the AIM team and NIES studied it comprehensively and publishedthe resulting comments on the AIM home page (seehttp://www-iam.nies.go.jp/aim/stern/index.htm or search on “AIM Stern”).

2. Background of the Stern Review in the context of UK government
policyAt the Gleneagles Summit in 2005, the UK Prime Minister, Mr. Blair, took up the problem ofclimate change in the agenda along with the problem of poverty in Africa, and he laid down
“The Gleneagles Plan of Action: Climate Change, Clean Energy and Sustainable Development”.
In response to the plan, the UK and other G8 and G20 countries and international bodies suchas the IEA and the World Bank will formulate their own review of climate change and present
it at the G8 summit to be held in Japan in June 2008.
The UK government already published the Energy White Paper in 2003 coordinated by Dr
Marshall, an business leader in economic circles. The White Paper proposed a 60% reduction
in annual CO2 emissions by 2050 as a national target. In addition, previous to the Gleneagles
G8 Summit, the UK government hosted a meeting of scientists at Exeter in February 2005,
bringing together leading experts of climate change from all over the world. These scientists,
including Dr. Harasawa from the AIM team at NIES who reported on the impact of climatechange in Asia, affirmed that climate change has been already occurring and it is one of themost important world issues in the 21st century. The UK called for the “Ministerial Meeting on
the Gleneagles Dialogue on Climate Change, Clean Energy, and Sustainable Development”
which was held in Monterrey, Mexico in October 2006. It was attended by Ministers and otherofficials from 18 major countries, and there was follow-up discussion on the problem ofclimate change. Through these actions, the UK is strengthening its leadership in the preventionof climate change.
Taking all this into consideration, the UK Treasury (HM Treasury) in July 2005 requested Dr.
Nicholas Stern, the former chief economist of the World Bank, to prepare a review of theexisting evidence regarding climate change and its economic implications. The objectives ofthis review were to systematically gather the results of climate-change researches from all over
the world through embassies and other organizations and to develop a common global view on
the possibility and the effects of the prevention of climate change from an economic
perspective. The preparation of the review began in the spring of 2006 by over 20 Stern Review
team members with support from researchers in climate policy in academia, international
bodies such as the World Bank, and other organizations all over the world, and the review was
published on October 30th, 2006. Since the publication of the review, Dr Stern has been
traveling to various countries to give presentations and raise awareness about the review. This
included a presentation at UNFCCC/COP12/MOP2 in Nairobi (United Nations Framework
Convention on Climate Change, the Conference of the Parties to the Convention, and theMeeting of the Parties to the Protocol) and a trip to Japan on November 28 and 29, 2006.
One of the remarkable characteristics of the Stern Review is that it was initiated by the HM
Treasury. An expert from the UK commented, “Actions for Climate Change used to be led by
Department of Trade and Industry (dti) and Department for Environment, Food and Rural
Affairs (defra), but without financial back up, their plans had little endorsement. Now with the
involvement of the HM Treasury, UK really shows its seriousness on the issue. Also, it has tobe pointed out that the Minister of Treasury, Mr. Brown, is a candidate for the next prime
minister”. The publication of the Stern Review by the HM Treasury shows that the UK intends

1Comments on the Stern Review
to put emphasis on climate change. As for Dr. Stern himself, researchers in developing
countries who have worked with him appreciate him as a sincere scholar and a practical man
who has long experience in handling development aid programs for developing countries.

3. UK’s Strong Leadership
Why are the Prime Minister and other top policy makers in the UK showing such seriousness
for the issue of climate change?
Firstly, based on the reports from scientists, the political leaders of UK recognize climatechange as a real problem which can potentially change the world in the long term; and they
seem to have made up their mind to tackle the problem. Judging from the UK’s responses at
Intergovernmental Panel on Climate Change (IPCC), it is clear that UK recognizes that the firstphase, which concerns about scientific evidence for climate change (agenda of the Working
Group I of IPCC), has already passed. It agrees that now the actual impact of climate change(agenda of Working Group II of IPCC) has begun to emerge, and that practical actions against
climate change (agenda of the Working Group III of IPCC) should take place. Such an attitudeof the UK can be seen in the fact that while previously it chaired the Working Group I, now it
has moved to chairing the Working Group II in the IPCC Fourth Assessment report which will
be published in 2007.
Secondly, based on scientific evidence, the experts in the UK have assessed the form of
future society and determined that the world should move to the low carbon society in the longterm. While the US withdrew from the Kyoto Protocol, the UK is seeking to be a world leader
in the area of global environment. In addition, as emphasized in the conclusion of the Stern
Review, UK is making clear the importance of creating an economic mechanism to cope withclimate change and intends to push “The European Union Greenhouse Gas Emission Trading
Scheme (EU ETS)” at the center of the mechanism.

4. Assessment of Stern Review
In international politics there are various conflicting interests. Therefore the results of theStern Review cannot be followed blindly; however, just because of such a reason, it is quite
inappropriate to criticize and deny the effort and the proposal of the Stern Review to avoid thedanger of climate change.
Thus, first of all, members of AIM team and NIES examined the Stern Review with theorthodox review style, that is, we evaluated if the results mentioned in the Stern Review werevalid in terms of data and explanations and if its discussion was in line with the latest scientificevidence. We discussed the following four major points: 1) assumption of discount rate, 2) costestimation of climate change impacts, 3) cost estimation of climate mitigation, and 4) theadvantage of early action. Our conclusion was that the data used in the review were within therange of existing scientific results; but there are both strong and weak sides in discussions andsome are not fully substantiated by scientific findings.
However, it is also necessary to assess the review within the scope of specific characteristicsof the review itself. That is, we should recognize that, as mentioned in the title “the Economicsof Climate Change”, this review covered certain issues and viewpoints which are not addressed
adequately by traditional economics. In other words, the Stern Review considers inertia anddelay both in the climate system and the social decision making system, owing to the problems
such as evidence of climate change in the long term, irreversibility, dispersion of impacts
across global regions and also of various decision making bodies. The review should beassessed for its path-breaking effort in bringing in a new dimension in environmental
economics, which did not deal with those problems because it has been traditionally carried out
with the assumptions of short term, global and mono-value system.
The Stern Review is also a remarkable research carried out with clear intention to avoid therisk of climate change. It is based on the idea that climate change should not be dealt by aconventional and simplistic cost-benefit approach. The review uses a guardrail approach toassess for the safe-side, taking non-economic damage into consideration for discount rate andrisk estimation, which could not be included in conventional economics. In addition, it should
be pointed out that this review is not merely the result of pure economic analysis but clearly a2Comments on the Stern Review
report with the intention to lead policy making from the viewpoint of building future “Low
Carbon Society” using a backcasting approach.
This review contains many recent research results about the prediction of damage by climatechange and its socio-economic implications, and some of those results might be precluding thesecond Working Group of the IPCC Forth Assessment Report (AR4) which will be publishedin April 2007. Another remarkable difference from the IPCC AR4 is that this review makes
articulate judgment based on the research results considering not only quantitative individual
risk but also non-economic risk, and clearly highlights the danger of climate change, whereas
IPCC tends to use rather conservative expression due to a large number of review processes byexperts and government officials.

5. About Various Criticisms
The publication of the Stern Review has stimulated various critiques from researchers,
which is making the debate interesting and clarifying the problems and challenges ofenvironmental economics. For example, R. Tol, who is one of well-known leading experts inthis field for over a decade, is making pertinent comments from economics viewpoint. Criticalcomments by W. Nordhaus, who has been energetically working on quantification of climate
risk for a long time, cannot be overlooked. There are many other comments and opinions, suchas by P. Dasgupta and D. Maddisonn, that argues both for and against the Review. If the
Review is assessed not as a text book of economics but as a report for leading policy making,discussion points should be also different. The Criticism by Marshall Institute, which
consistently enumerates the uncertainty of scientific basis, seems a much outdated criticism
now. Brief quotations in praise of the Stern Review by Nobel Prize winning economists such as
J. Stiglitz and A. Sen have also appeared, but we would be interested to know the analysis andexplanations behind such comments.

3

Comments on the Stern Review
II.

Comments by AIM team and NIES

1. Characteristics of the Stern Review
The Stern Review is a report written based on the scientific aspects1) of climate change andintended to promote policies3) to prevent the risks2) associated with climate change, and it
summarizes and compiles knowledge from an economic perspective4). The report covers thefollowing points.
1） The characteristics of decision making under the climate system which are different
from conventional economic systems: i.e. irreversibility, inertia in the climate
system, the likely long term and multi-generational impact on the world and on
future populations, causes and consequences among globally-dispersed agents, thedifficulty and expected delays associated with decision-making for attaining global
consensus, and economic constraint caused by carbon budget.
2） Precautionary approach: i.e. preventing dangerous levels and overshooting of
atmospheric greenhouse gas concentration, and projections involving cost estimatesand discount rate settings that emphasize the safer route.
3） Active guidance to climate change mitigation measures: i.e. giving constructive
induction based on climate stabilization targets; not just a marginal policy by aperturbation approach from the present condition, but including the real and actual
external diseconomy of carbon dioxide emissions and considering the endogenousdevelopment of technology.
4） Compiling and organizing scientific economic knowledge concerning climatechange: i.e. the report may evoke criticism as it is outside the realm of mainstream
economic theory, but it is a bold proposal that amalgamates policy science,
economics, and environmental ethics.

2. Discussion points
Based on viewpoints mentioned above, discussion points of the Stern Review aresummarized below. As conclusions for policy proposals, the Stern Review strongly asserts thefollowing points:① Current trend of climate change will incur very serious long-term global risks.
② The benefits of intensive countermeasure on climate change outweigh the
mitigation costs.
③ The early policy action has more economic advantage than the late one.
In order to evaluate whether these deductions are logical and sound and the calculations are
based on reliable data and assumptions, we discuss the following issues:
Issue １ Assumption of intertemporal discount rate: The discount rate (the rate of puretime preference) of 0.1% used for climate impact assessment is quite low and
not usual value compared with ones used in the past. The discount rate has agreat impact on future valuations, so is this rate appropriate?
Issue ２ Cost estimation of climate change impacts: Is the cost estimation of 5 to 20%
of GDP based on reliable and unbiased review of previous studies? Is this inline with current research?
Issue ３ Cost estimation of climate mitigation: What is the basis for the claim thatmitigation costs will be around 1% of GDP? Is this in line with current
research?
Issue ４ The advantage of earlier intervention and action: Are there clear advantages
to enforcing emission reduction earlier?

4Comments on the Stern Review
Issue 1. Assumption of intertemporal discount rate
The discount rate (the rate of pure time preference) of 0.1% used for climate
impact assessment is quite low and not usual value compared with ones used in
the past. The discount rate has a great impact on future valuations, so is this rate
appropriate?
(the text of the last paragraph, on page ix, in Executive Summary)We have also considered how the application of appropriate discount rates,
assumptions about the equity weighting attached to the valuation of impacts inpoor countries, and estimates of the impacts on mortality and the environment
would increase the estimated economic costs of climate change.
(the text of the 5th key message from the top, on page 143, in Section 6, Part II)
Modelling over many decades, regions and possible outcomes demands that we
make distributional and ethical judgements systematically and explicitly.
Attaching little weight to the future, simply because it is in the future (‘pure time
discounting’), would produce low estimates of cost – but if you care little for the
future you will not wish to take action on climate change.

[Comment]
In box 6.3 on page 161, as well as in the text on page 162 and in Table 6.1 on page 163, thediscount rate is set at 0.1%. In order for various future impacts to be evaluated based on thesame values as those currently held, the discount rate should be set at 0 %. However, is it
evident enough to use 0.1% as the discount rate, but not using 0% or 0.01%? As mentioned in
the Stern Review, is it a reasonable explanation to associate the discount rate of 0.1 % with theprobability of surviving of human being during the 21st century of 90%, although similar
explanation was used in previous studies?
(in box 6.3 on page 161)

where W is social welfare and δ is the utility discount rate. The value of δ is taken
to be 0.1% per annum, so that the probability of surviving beyond time T is
described by a Poisson process e-δT, where δ is the annual risk of catastrophe
eliminating society, here 0.1%. So the probability of surviving beyond, say, 2106
is e-0.001*100, which is 90.5%. The Appendix to Chapter 2 discusses theimplications of this choice in more detail.
With regard to Issue 1, the following three points should be studied:1) It is necessary to have peer review on application and implication of a discount rate
for impact analysis and a discount rate for mitigation analysis, particularly under theestimation in regional and sectoral aggregations like in the Stern Review.
2)

The discount rate used for impact analysis in the Stern Review is "the rate of puretime preference" regarding the intertemporal (but not consumption) utility. Thisrequires a consideration of ethical issues. Is it certain that this will be 0.1%?

3)With regard to impact analysis in previous studies, evaluations have been conducted
for the impact cost up to 2100, but in the Stern Review, expanding the time horizon to2200 represents a dramatic change. Moreover, the use of a small discount rate for thisperiod will have a major effect on the evaluation, but how much it would be?

5Comments on the Stern Review
With regard to 1), W.D. Nordhaus, for example, established the same discount rate in the
DICE model in order to evaluate global warming mitigation and impact by using the same
utility function. The concepts of opportunity costs have a major effect on the discount rate for
mitigation, whereas it is the approach of multi-regional and multi-generational equity that
accounts for a major portion of the discount rate for impact.
With regard to 2), if the degree of impact appearing at present is the same as the impact thatwill appear in the future and the future impact is evaluated to be the same as that appearing atpresent, the discount rate should be zero. The reason for setting a value slightly larger than zerois that otherwise the technical problems are considerable. If a value of zero is used for the
discount rate δ shown in the equation, the function becomes infinity and the problem becomesunsolvable.
With regard to 3), the discount rates set in estimates in previous studies were at least 2 - 3%.
We have been unable to find an example which uses a value of 0.1%. If future impact is to beevaluated using values that are close to present values, it is expected to lead to the conclusionthat more early action is needed.
For details, see Section 2.4 "The long-run impacts of climate change: evaluation over timeand discounting" and Section 2A.2 “Intertemporal appraisals and discounting" (both in Part 1).

6

Comments on the Stern Review
Reference information:
Explanation of discount rate in Chapter 4, Working Group 3 (WG3), the IPCC Second
Assessment Report (SAR)
Descriptive approach and normative approach•
Descriptive approach: empirical¾ Asks what people will select, including with regard to the tradeoff between
maintaining the present course and shifting to a new course, and what degree ofinvestment in GHG reduction will be replaced with other types of investment.
¾ A high discount rate is set and comparatively low expenditures for measures tomitigate climate change are anticipated.
•
Normative approach: normative and ethical¾ Asks how the impact on future generations should be evaluated.
¾ A low discount rate is set and high expenditures for measures to mitigate climatechange are anticipated.
Generational compensation•
Descriptive approach¾ Envisions the compensation provided to other generations from a certain generation,no matter for what environmental losses.
¾ Asserts that a course that maximizes consumption should be selected whentransferring benefits from a generation in which the present value of consumption iscomparatively high.
•Normative approach¾ Major restrictions are imposed on the transfer of benefits to future generations, andthe only method of transferring benefits is climate change action.
Discount rate = “the rate of pure time preference” + “elasticity of marginal utility of
consumption” x “rate of change in consumption”•
The reasons that discount rate under the utility measured in the unit of consumption ispositive:¾ “The rate of pure time preference”: Low degree of concern with regard to future
generations¾ “Elasticity of marginal utility of consumption” x “rate of change in consumption”:
belief that future generations will be wealthier than the present generation

7

Comments on the Stern Review
Issue 2. Cost estimation of climate change
Is the cost estimation of 5 to 20% of GDP based on reliable and unbiased review
of previous studies? Is this in line with current research?
(the text of the second last paragraph from the bottom, on page x, Executive Summary)
In summary, analyses that take into account the full ranges of both impacts andpossible outcomes - that is, that employ the basic economics of risk - suggestthat BAU climate change will reduce welfare by an amount equivalent to a
reduction in consumption per head of between 5 and 20%. Taking account of theincreasing scientific evidence of greater risks, of aversion to the possibilities ofcatastrophe, and of a broader approach to the consequences than implied bynarrow output measures, the appropriate estimate is likely to be in the upper partof this range.
[Comment]
In Chapter 6, an evaluation of the cost of impact was conducted using the integrated
assessment model named PAGE2002, and the estimated cost was greater than that based on
existing knowledge. The major reason given to explain the higher estimated cost is that points
not considered in previous integrated assessment models were taken into consideration in the
Stern Review as follows (the numbers shown in square bracket are estimated by reviewing
Table 6.1 on page 163):•
Types of impact considered¾ Cost of non-market impacts such as human health and the environment[approximately 1.5 times market impacts]¾ Cost of rapid, large-scale impact due to system changes [approximately 2.9 times
market impacts]•
Climate behavior response to greenhouse gas emissions¾ Effect of climate change amplifying feedback that has become known since the Third
Assessment Report (2001) [approximately 30% greater than cases in which there isno feedback effect]
The economic loss of 20% due to global warming that appears in both the chapter headline
and summary is calculated by using the Balanced Growth Equivalent (BGE). The BGE isdetermined for cases in which climate change does and does not occur, and the difference
between these two values indicates the size of the cost of impact, in the form of the equivalentpermanent percentage loss in consumption from the present to the future. The discount rate of
0.1% per annum has been used which is much smaller than the one frequently used in previous
studies. As a result, when the BGE is used to tabulate impact cost in terms of time, there is acomparatively greater emphasis on the impact after the climate has changed greatly in the
future, and so ultimately the estimate of the cost of impact is high.
The result of the 20% economic loss includes not only the newly considered impact
mentioned above and the climate change amplifying feedback, but also a 25% increase inimpact that was considered as a result of regional weighting done in order to take equity into
account. With all of these factors taken into account, the impact was estimated as
approximately (1 + 1.5 + 2.9) * 1.3 * 1.25 = 8.775 times as compared to the case of market
impacts only. In the case of market impacts alone,, climate change amplifying feedback andequity were not taken into consideration.
It is necessary to note that, both in the summary and the text, the Review appears to make aneffort to over-emphasize the “20%” value that is the value for the combination of cases inwhich the impact is most severe, even though the Review evaluates multiple cases with regard
to the type of impact and climate behavior in order to assess uncertainty in the evaluation
method. In addition, the summary of knowledge of climate change impacts in Chapter 3 toChapter 5 is not necessarily exhaustive and may have a bias toward negative predictions.
Almost all of the previous research into the impact of climate change targets specific regions,8Comments on the Stern Review
and not enough research has been conducted into the world as an aggregate. There are many
points of disagreement, such as the monetary value of human life used for the people affectedby climate change. Moreover, the Stern Review includes the impact of indoor air pollution
caused by gases other than CO2 such as NOx and SOx.
Although the value of 20% is greater than the figures cited in the research up to now, it canbe considered as a possible value. The lower side of the range (close to 5%) appears moreplausible.
(Table 6.1 on page 163)9

Comments on the Stern Review
Issue 3. Cost estimation of climate mitigation
What is the basis for the mitigation costs will be around 1% of GDP? Is this inline with current research?
(the text of the paragraph under Figure 3, on page xii, Executive Summary)
Achieving these deep cuts in emissions will have a cost. The Review estimates
the annual costs of stabilisation at 500-550ppm CO2e to be around 1% of GDP by
2050 - a level that is significant but manageable.
(the text of the fourth paragraph above Figure 3, on page xiii, Executive Summary)Resource cost estimates suggest that an upper bound for the expected annual
cost of emissions reductions consistent with a trajectory leading to stabilisation
at 550ppm CO2e is likely to be around 1% of GDP by 2050.
(the text of the third paragraph from the bottom, on page xiv, Executive Summary)
Looking at broader macroeconomic models confirms these estimates.
[Comment]
In Fig. 9.3 on page 230, the Stern Review states that, to achieve the target of stabilizing
greenhouse gases at levels of 500 - 550 ppm CO2eq, emissions must be reduced to 18 Gt CO2
by 2050 and to 7 Gt CO2 by 2075. It further notes that, in the case of the "business-as-usual"(BAU) approach, emissions would be 61 Gt CO2 by 2050 and approximately 70 Gt CO2 by
2075. With regard to the estimate of the cost of stabilization of greenhouse gases to the target
level, according to a paper by Dennis Anderson, using the Monte Carlo Simulation in which
technical development, fossil fuels, the acceptance or rejection of the introduction of CCS andother external factors were altered, the cost of action for the entire world by 2050 was
estimated at -0.6 to 3.5% of GDP, with an average value of 1% (assuming that futuretechnological development would reduce technological costs to 3/4 of current levels by 2050).
This is confirmed by Fig. 10.1 which summarizes in a single figure the results of comparative
studies using various models.
The result itself is no different from the values that have been reviewed by the IPCC andother international agencies, but caution is needed with regard to cases in which the GDP isincreasing. In the Innovation Modeling Comparison Project (IMCP) (a comparative study ofnumerical simulations conducted using multiple models for the results of endogenous
technological development), a quantitative analysis was conducted through modeling of theeffects of endogenous technological developments. Among these, a certain model that was usedenvisioned active roles of technological developments and produced extremely positive
answers. To use a bit of hyperbole, it could be said that, "At the present time, researchers haveenergy to spare, so they should be able to conduct further research and develop manytechnologies to resolve the 500 - 550 ppm CO2eq restrictions. Depending on the approach, thiswill accelerate technological development and be a boon to the economy as well." The analysisof the cost of these efforts is greatly dependent on the BAU settings. Even if the BAU society
already implemented action, the costs would be extremely high if the society were one that did
not have room to make reductions, while they would be low if the society had room to makereductions. Depending on the situation, a society like the one in the Porter hypothesis can beenvisioned, in which environmental restrictions increase industrial competitiveness.
However, with restrictions of 500 - 550 ppm CO2eq, the temperature rise will be 2.5 - 3.0°Cof the level prior to the Industrial Revolution, and this does not match the British government's
target of 2°C. The Stern Review holds that the level can be held to 2 - 2.5°C with restrictions of
400 - 450 ppm CO2eq. But given that CO2 concentrations alone have already reached 380 ppm
and costs would be approximately three times the costs of the 500 - 550 ppm CO2eq restrictions,
it would be difficult to reduce greenhouse gas concentrations in the atmosphere in line with the
400 - 450 ppm CO2eq restrictions. The evaluations in anticipation of mitigation action areconservative despite the concern for the major impact in the future.

10Comments on the Stern Review
For details, see Chapter 9 and Chapter 10（Figure 10.1, on page 242, Chapter 10）

Source: Barker, T., M.S. Qureshi and J. Kohler (2006): The costs of greenhouse-gas mitigation
with induced technological change: A Meta-Analysis of estimates in the literature,
4CMR, Cambridge Center for Climate Change Mitigation Research, Cambridge:
University of Cambridge.

11Comments on the Stern Review
Issue4. The advantage of early action
Are there clear advantages to enforcing early emission reduction?
(the text of the middle of paragraph, on page i, Executive Summary)The benefits of strong, early action on climate change outweigh the costs.

[Comment]
This subject is at the foundation of the Stern Review. It is for this purpose that the review
was conducted, focusing on such topics as the approach to the discount rate and the cost of both
impact and mitigation.
In order to make the above-mentioned argument, the following points must be clarified:
1) Impact resulting from procrastination in implementing mitigation action,2) Basis for the belief that costs will be lower if early action is implemented, and
3) Treatment of the uncertainty inherent in both of the above points.
With regard to 1), in order to avoid sudden temperature rise, it has been pointed out that theextent of the temperature rise during a 10-year period must be kept to 0.2 degree or less(guardrail) [Ferenc, et al., 1997]. However, according to the analysis by means of an integrated
assessment model, namely the IMAGE model [Vuuren, et al., 2006], major reductions are
impossible at an acceptable cost with the current level of technology, and even if all possible
efforts are made, it would not be possible to hold the 10-year temperature rise to 0.2°C or lessuntil 2030, and hence overshooting of the GHG concentration level will be unavoidable. We
recognize that early action on reductions are necessary in order to avoid the impact of global
warming, but it should consider the trade-off between the cost of mitigation action and the costof impact.
With regard to 2), it has been asserted that, rather than rushing to implement mitigation
action, conducting careful preparations and then implementing full-fledged efforts will lower
the cost of its action. This approach holds that, as a result of the technological development thatis expected to occur in the future, the cost of mitigation action is certain to gradually decrease,so rather than forcing ourselves to introduce many expensive technologies and impose an
economic burden, it would be better to introduce many cheaper technologies in the future to
reduce economic losses. The WRE scenarios in this connection are particularly well-known[Wigley, et al., 1996].
However, even the WRE scenarios hold that cost reductions resulting from technologicaldevelopment efforts starting from the present time and ongoing efforts to diversify options will
be indispensable. Furthermore, factors that must be taken into consideration include thefollowing:(a) Once the design and implementation of a high-carbon society moves ahead,particularly in developing countries and other places where development will progress
rapidly in the future, switching to a low-carbon society later may require enormous
investment in equipment and other changes.
(b) The effect of introducing a carbon tax will be useful not only in reducing short-term
energy supply and demand but also in the long-term investment in a low-carbon
infrastructure.
(c) Certain technological development efforts may induce spontaneous new technologicalprogress (endogenous technological development), and strict environmental
restrictions may give rise to new technological innovation (the Porter hypothesis).
With regard to 3), there is uncertainty inherent in the identification of damage resulting fromglobal warming, the setting of appropriate objectives, and the identification of the cost of
mitigation action. Moreover, even if mitigation action succeeds in stabilizing levels at 500 550 ppm CO2eq at a cost of 1% of GDP, the impact of global warming due to a temperature riseof 2.5 - 3.0°C will be unavoidable, and the resulting damage and the cost of appropriate
adaptation measures to reduce the impact of global warming must be taken into consideration
in a comprehensive manner. Although the issues relating to these points are considered to some12Comments on the Stern Review
degree in the Stern Review, the advantages of early action are not derived with overwhelming
certainty as a consequence of the consideration of these issues. Even while including a certain
degree of arbitrariness, the review limits itself to surmising the advantages of early action froma broad-based perspective.
Sources:
Ferenc L. Toth, et al. (1997), Tolerable windows approach to integrated assessments ICLIPS
Project - Integrated Assessment of Climate Protection Strategies, Potsdam Institutefor Climate Impact Research (PIK).
Vuuren D.P. van, et al. (2006), Stabilising greenhouse gas concentrations at low levels: anassessment of options and costs, Report no. 500114002, Netherlands Environmental
Assessment Agency (MNP).
Wigley, T.M.L., R. Richels, and J.A. Edmonds (1996). Economic and Environmental
Choices in the Stabilization of Atmospheric CO2 Concentrations, Nature 379, pp.
240-243.

13

Comments on the Stern Review
3. Conclusion
The Stern Review is within the scope that does not greatly deviate from previous studies.
However, it breaks with the short-term perspective of mainstream economics in current
research, in that it has a strong tinge of global environmental ethics symbolized by the discountrate of 0.1%. The report also strongly asserts that the natural systems that are affected by global
warming and the human systems of the people whose lives are dependent on these natural
systems must be discussed from a more long-term perspective. Moreover, the Review clearlyshows that, if we use this perspective to take another look at the existing natural scienceknowledge relating to global warming, the prospects for technological progress, and theuncertainties in these areas, the damage that would result from a failure to curb global warming
would be far greater than the costs needed for restrictions. Viewed from the methodology of acost-benefit analysis, the reasoning in the Stern Review contains many shortcomings, and it
does not propose specific targets for curbing climate change. However, even with only thescientific knowledge that we possess at this point, it succeeds in clearly stating that full-fledged,
large-scale policies to mitigate global warming possess a high degree of economic rationality.
In our view, Sir Nicholas Stern, who has a thorough knowledge of the field of economics,
deserves high praise for conducting such a constructive evaluation based on a careful review of
the issues.

14

The National Institute for Environmental Studies (NIES) has been focusing on
solving environmental issues since its establishment in 1974. NIES provides ascientific and technological infrastructure for environmental administration withintegrated and interdisciplinary research on a wide range of issues. Our framework
allows us to focus comprehensively on environmental issues with the cooperation ofexperts in diverse fields ranging from pure sciences, engineering, agriculturalsciences, medical sciences, pharmacology, and fishery sciences, to law andeconomics. In April 2006, NIES embarked on its second five-year plan as a newly
established independent administrative institution. There are several research centersand divisions such as center for global environmental research, Research Center for
Material Cycles and Waste Management, and NIES provides environmental
information through our website.
NIES website：http://www.nies.go.jp

The Asia-Pacific Integrated Model (AIM) is a set of computer simulation models
developed by National Institute for Environmental Studies and Kyoto University, forassessing policy options on climate change and sustainable development. The original
AIM is an integrated “top-down and bottom-up” model and comprises three mainmodels – the greenhouse gas (GHG) emission model (AIM/Emission) that estimates
future GHG emissions due to socio-economic activities in global regions andevaluates policy options, the global climate change model (AIM/Climate) thatanalyzes increase of atmospheric GHG concentration and its effect on global
temperature and regional climate change, and the climate change impact model(AIM/Impact) that analyzes climate change impacts and risks for environment andhuman beings in different regions. AIM is used for assessing policy measures such as
direct and indirect effects of mitigation policies, evaluation of uncertainty inherent inpolicy assessment, comparison of mitigation cost and its effects, in order for GHG
emissions reductions and avoidance of the danger of climate change.
AIM website：http://www-iam.nies.go.jp/aim/index_ja.htm
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