The Winners of the Blue Planet Prize
2009
Professor Hirofumi Uzawa (Japan)
Lord (Nicholas) Stern of Brentford (UK)2009Blue Planet Prize
Professor Hirofumi Uzawa(Japan)Lord (Nicholas) Stern of Brentford(UK)

Member of The Japan Academy
Professor Emeritus, The University of Tokyo

Professor, The London School of Economics

GIFT:
This Blue Planet we live on
Is blessed to hold life
In the universe full of stars brilliantly
shining
We humankind
Are we spending the days by embracingfrom deep in our heart?
The happiness of being born on this blue
planet of life
As a tiny life born on this planet
Caring other lives, cherishing eachother
Are we pursuing in full, the meaning of
our lives?
By truly giving our appreciation
To the blessings of the “planet of life”
Earth
It is our great pleasure
If the film this time
Served you to think
About the happiness of living on thisblue planet
By extending your thoughts
To the gifts from the “planet of life”
Earth

Selected from the Slide Show Presented at the Openingof the Awards Ceremony151

His Imperial Highness Prince Akishino congratulates
the laureates

Their Imperial Highnesses Prince and Princess Akishino
congratulate the laureates at the Congratulatory Party

The prizewinners receive their trophies from Chairman Seya

Professor Hirofumi Uzawa

Lord (Nicholas) Stern of Brentford
Dr. Hiroyuki Yoshikawa,
Chairman of the Selection
Committee explains therationale for the determination of the year's winners

Hiromichi Seya, Chairman of the Foundationdelivers the opening address

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Professor Ichiro Kanazawa, President, Science Council ofJapan (left) and Mr. David Warren, United Kingdom
Ambassador to Japan, congratulate the laureates

Profile

Professor Hirofumi Uzawa
Member of The Japan Academy
Professor Emeritus, The University of Tokyo
Education and Academic and Professional Activities
1928
Born in Yonago, Tottori Prefecture
1951
Graduated from the Department of Mathematics, Tokyo University; Special
research student from 1951 to 1953
1956
Research Assistant, Stanford University; Assistant Professor in 1959
1960
Assistant Professor, Department of Economics at the University of California,
Berkeley
1961
Associate Professor, Department of Economics, Stanford University
1962
PhD in Economics (Tohoku University), Thesis: “Studies of the General
Economic Equilibrium Theory of Léon Walras”
1964
Professor, Department of Economics, University of Chicago
1966
Fellow, Churchill College, Cambridge University
1968
Assistant Professor, Department of Economics, Tokyo University; Professor in
1969; Dean in 1980
1983
Person of Cultural Merit1989
Appointed Professor at the Department of Economics, Niigata University after
retiring from Tokyo University; Professor Emeritus at Tokyo University
1994
Professor, Department of Economics, Chuo University (retired in 1999)
1997
Order of Cultural Merit1999
Full-time researcher, The Institute of Economic Research, Chuo University;
Adjunct Professor, Institute of Advanced Studies, United Nations University
2000
Professor, Research and Development Initiative, Chuo University
2003
Director, Research Center of Social Common Capital, Doshisha University
2009
Senior Fellow, Keiyu International Institute of Medicine(As of June, 2009)

In addition to the accomplishment of internationally cutting-edge research in the field ofmathematical economics, Professor Uzawa has made a great impact from early on with his
economics-based analyses and proposals for the issues on pollution and the environment. He
has tackled the social cost of automobiles, urban problems, and global warming, and as atheoretical framework in confronting such issues he has advocated the concept of Social
Common Capital, a pioneering and highly original achievement.
In addition, he has contributed to the peaceful resolution of the Minamata disease issue
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and the Narita Airport construction issue, and has been consistent in his work as an economist
who confronts the real world with a sincere outlook. Professor Uzawa continues to sound thealarm with respect to contemporary economics and civilization and remains a major influence
on both the international stage and in Japan.
From Mathematics to Economics
Professor Uzawa graduated from the Department of Mathematics at the University of Tokyoin 1951 where he continued to work as a special research student until 1953. At that time, hediscovered the true nature of economics in the words of John Ruskin, “There is no wealth, butlife.” which was featured in the foreword to Tale of Poverty by Hajime Kawakami, and set out
to educate himself about economics.
In 1956, a paper on decentralized economic planning written by Professor Uzawa
caught the eye of Professor Kenneth Arrow at the Department of Economics, Stanford
University, who invited him to be a research assistant. After becoming Assistant Professor at
Stanford in 1959 and in 1960 at the Department of Economics of University of California,
Berkeley, he was appointed Associate Professor of the Department of Economics at Stanford
in 1961, and in 1964 became Professor at the Department of Economics of University of
Chicago. During this period, he researched the issue of optimum economic growth resulting
in his remarkable paper On a Two-Sector Model of Economic Growth, which covered the
production sectors of consumer goods and investment goods in manufacturing equipments.
During his time at the University of Chicago, Joseph E. Stieglitz and George A. Akerlof, later
Nobel laureates in economics, were among the students attending his seminars in mathematical
economics.
Departing from Mathematical Economics to A Theory of Social Common Capital
In 1968, Professor Uzawa accepted a position as Assistant Professor of the Department of
Economics at the University of Tokyo and returned to Japan as protests against the Vietnam
War in the United States turned violent. Then, the words of John Ruskin came back to him andhe started to think about the concept of Social Common Capital or “how to incorporate thenatural environment and the social environment in economic theory,” renewing his resolution
to study the “economics that value the human spirit,” which later became his consistent set ofbeliefs. Even though he realized that “it would be a full-frontal critique of the work I had done
so far,” he nevertheless criticized the status quo of mathematical economics (neo-classicaleconomics) and sought to build a framework for economics with a solid foundation in thesocial environment, nature, education and healthcare.
In this period, he also turned his attention to the issues of pollution worldwide following
in the wake of industrialization and urbanization, taking a strong interest in the Minamata
disease and immersing himself deeply in pollution and environmental issues.
In 1972, he published for the first time the concept of Social Common Capital, which
later became extremely important in thinking about global warming countermeasures. Social
Common Capital refers to a natural environment and social infrastructure that enables thepeople living in a country or a specific region to enjoy a prosperous economy, develop a superb

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culture, and maintain in a sustained and stable fashion a society that is attractive on a humanlevel. It has a strong connection to human life and existence, one might even say that it is a wayof thinking that attempts to socially manage common assets including resources, goods,
services and systems that are important for a society to function smoothly. As a result, Professor
Uzawa constructed the theoretical foundation that lies behind the concept of the commons.
The following three elements constitute Social Common Capital:
1. The Natural Environment: the atmosphere, water, forests, rivers, lakes, oceans,coastal wetlands, soil etc.
2. Social Infrastructure: roads, transportation facilities, water and sewerage, electricity
and gas etc.
3. Institutional Capital: education, healthcare, finance, the judiciary, public administrationand other systems
Each category must be managed and operated by professionals in accordance withprofessional standards and based on specialist knowledge.
Building on ideas based on the concept of the Social Common Capital, Professor
Uzawa became involved in the pollution problems, authoring The Social Cost of the Automobile
in 1974, which turned the focus on the extent of pollution and damage caused to the naturalenvironment and the social infrastructure of the Social Common Capital by the use of
automobiles. Next, he attempted to calculate the social cost of automobiles. He measured thecost of creating ideal roads that do not infringe on the basic rights of the community byrebuilding roads which had numerous defects such as the lack of separation between pedestrians
and cars. Setting this value as the index, he calculated the necessary cost of converting roadstructures and found that the social cost per automobile per year was at minimum two million
yen.
The Economics of Global Warming
Professor Uzawa also put his attention to the issue of global warming from an early stage. As
well as participating in the first conference of economists on the topic of global warming inRome in 1990, he authored The Economics of Global Warming in 1991 where he focused on
the implications of global warming on 20th century civilization and proposed preventative
measures. His understanding on global warming was that it was caused by the massconsumption of fossil fuel and logging in the tropical rainforests. And the global environment
came under great stress as a result of the insatiable pursuit of “affluence” and material comfort
of advanced industrial nations that have turned waste habit into a virtue. In contrast, indeveloping countries where poverty dominates and economic development is nowhere insight, people are forced into a predicament where they cannot but destroy nature and pollutethe environment in order to survive. Consequently, Professor Uzawa pointed out that rich andpoor countries equally destroyed the global environment, inflicting damage that cannot be
undone by future generations. On the other hand, Professor Uzawa also turned his attention tocarbon tax, in a broad sense an environmental tax, which was an initiative developed among
economists as an effective policy for preserving the stability of the natural environment far
into the future and for preventing global warming. Professor Uzawa stated that from the155viewpoint of fairness there were major problems with the intergovernmental terms for reducing
total emissions of greenhouse gases by country, including the plan to reduce carbon dioxide
emissions by 20% proposed at the international conference on atmospheric change held at thesame time as the 1988 Toronto Summit in Canada. He has pointed out that, generally speaking,international agreements for stabilizing the atmosphere were extremely lucrative for developed
countries and, moreover, that their character was antisocial to the extent that countries that
consume fossil fuels profit from them. He is an advocate of the carbon tax system as a measurefor stabilizing the atmosphere that could actually be put into practice. On the other hand, an
uniform carbon tax system was not only problematic from the viewpoint of international
fairness, but as there was a risk of nipping economic development in the bud in the majority
of developing countries, he proposed a “proportional carbon tax” according to per capita
income in each country.
In addition, there was an inherent risk that the carbon tax itself would deter economic
progress in developing countries and, even if the system of a proportional carbon tax is adopted,
Professor Uzawa thought that it was not an effective strategy in resolving the North-South
problem. Accordingly, he devised the concept of an international fund for stabilizing theatmosphere that would eliminate the economic disparities between industrialized anddeveloping countries and act as an effective deterrent to global warming while stabilizing theatmosphere.
The principle behind the concept is that every government donates a fixed percentageof the silviculture subsidy deducted from the proportionate carbon tax revenues to theinternational fund for stabilizing the atmosphere. The fund distributes the contributions fromeach country to developing countries where the allocation is used for measures to protect the
global environment such as protecting tropical rain forests, sustaining agricultural communities
or developing alternative energies.
Professor Uzawa’s concept of a proportionate carbon tax and an international fund forstabilizing the atmosphere that would protect tropical rain forests and facilitate the preventionof global warming has won the backing of many economists as an international concept thatconsiders intergenerational and regional disparities, but it has not been accepted as policy yet.
A Message to the Contemporary Society
In recent years, Professor Uzawa has turned his attention to movements that aim to “rehabilitate
human beings,” referring to the “urban and natural renaissance” that is taking place in Europe,and he is engaged in the research to spark this trend in Japan as well. He favors removing theconcrete that covers riversides and returning to the meandering rivers of the past, planting theperiphery with local trees and shrubs, and preventing floods not by building dams, but by
creating rich woodlands in the upper reaches of the rivers, which social wisdom have long
employed to control the waters by means of “green dams” that use the storage capacity ofnature.
Professor Uzawa discloses his perception of the relationship between human beingsand nature as a form of culture whereby society should communicate by going beyond thegenerations, saying “The culture of original human society prevented the depletion of natural156

resources by means of a dialog with nature and accumulated knowledge about the naturalenvironment within social norms designed for the survival of the society, and the culture(social system) also included transmission to the next generation.”
Professor Uzawa points out that in modern times harmony between people and nature
has collapsed and environmental destruction has advanced on a global scale because “modern
science has played a major role in facilitating a lack of constraints on the exploitation of natureand ideas that place human beings in a position that is superior to nature.” Global warming is
a straightforward example. He stressed that we should recognize it is an extremely dangerous
environmental change progressing on an unprecedented scale and that every effort must be
made to tackle it now.
When considering institutional capital as social common capital, education and medicalcare assume the most important position. Education has the mission to promote both naturalborn and acquired talent of each child as far as possible. On the other hand, medical care shallbe performed based upon the professional medical knowledge to treat people who lose theirregular functions through diseases or accidents. Those two functions are absolutely imperative
to sustain the society that keeps each citizen to maintain dignity and to enjoy civil liberty. To
live one’s life in humane manner, I like to emphasize, those social common capitals play
important part and shall never be controlled by mere market standards or bureaucrats.
A Paradigm Shift
In the latter half of the 1960s, Professor Uzawa felt “the emptiness and limitation of economics
that advances enquiries based on abstract concepts such as capitalism or socialism” andstemming from this, he searched for a new framework, arriving at the idea of the Social
Common Capital. The concept of the Social Common Capital offers an important foundation
for institutional and political analysis in order to draft and select policies. It is viewed as anengine (mechanism) that creates measures that point to new directions for resolving a range ofissues.
Social Common Capital provides a more honest answer than the economic point ofview to the enquiry that is the ultimate goal of economics, “what should be done to bring abouta sustainable and stable society?” When its social and institutional implications are considered,Social Common Capital furnishes a paradigm that opens the way to a new age.
Today, when it is said anew that social stability is important, the concept of Social
Common Capital is an important starting point for economics even as we consider whatstability is and what should be done. The concept is a form of social management based onsocial standards and a way of thinking that emphasizes management systems on a foundationof professional ethics. It is a great achievement on the part of Professor Uzawa to haveconsistently advocated this concept, and based on the unshakeable conviction that social
problems including environmental issues are “the issues that economics should be tackling,”
to have shown such vigor in protecting the fundamental rights of the citizenry, issuing warnings
on global warming and proposing measures and policies. In the future, Professor Uzawa will
surely continue to have a great impact both in Japan and on the international stage.
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LectureSocial Common Capital
Professor Hirofumi Uzawa
Rerum Novarum Inverted: The Abuses of Socialism and The Illusions of Capitalism
In his historic 1891 Encyclical Rerum Novarum, Pope Leo XIII identified the most pressing
problems of the times as “the abuses of capitalism and the illusions of socialism”. He called
the attention of the world on “the misery and wretchedness pressing so unjustly on the majorityof the working class” and condemned the abuses of liberal capitalism, particularly the greedof the capitalist class. At the same time, he vigorously criticized the illusions of socialism,
primarily on the ground that private property is a natural right indispensable for the pursuit ofindividual freedom. Exactly 100 years after Rerum Novarum, the New Rerum Novarum wasissued by Pope John Paul II on May 1, 1991, identifying the problems that plague the world
today as “the abuses of socialism and the illusions of capitalism” (John Paul II, 1991, andUzawa, 1991a, 1992c).
Contrary to the classic Marxist scenario of the transition of capitalism to socialism, theworld is now faced with an entirely different problem of how to transform a socialist economy
to a capitalist economy smoothly. For such a transformation to result in a stable, well-balanced
society, however, we must be explicitly aware of the shortcomings of the decentralized market
system as well as the deficiencies of the centralized planned economy.
The centralized planned economy has been plagued by the enormous power that has
been exclusively possessed by the state and has been arbitrarily exercised. The degree of
freedom bestowed upon the average citizen has been held at the minimum, whereas humandignity and professional ethics have not been properly respected. The experiences of socialist
countries during the last several decades have clearly shown that the economic plans, both
centralized and decentralized, that have been conceived of by the government bureaucracy,
have been inevitably found untenable either because of technological deficiencies or in termsof incentive incompatibility. The living standard of the average person has fallen far short ofthe expectations, and the dreams and aspirations of the majority of the people have been left
unfulfilled.
On the other hand, the decentralized market economy has suffered from the perpetualtendency toward an unequal income distribution, unless significant remedial measures aretaken, and from the volatile fluctuations in price and demand conditions, under which
productive ethics has been found extremely difficult to sustain. Profit motives often outrun
moral, social, and natural constraints, whereas speculative motives tend to dominate productive
ethics, even when proper regulatory measures are administered.
We must now search for an economic system in which stable, harmonious processes of
economic development may be realized with the maximum degree of individual freedom andwith due respect to human dignity and professional ethics, as eloquently prophesied by John
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Stuart Mill in his classic Principles of Political Economy in a chapter entitled “Of the Stationary
State” (Mill, 1848). The stationary state, as envisioned by Mill, is interpreted as the state of theeconomy in which all macroeconomic variables, such as gross domestic product, national
income, consumption, investments, prices of all goods and services, wages, and real rates ofinterest, all remain stationary, whereas, within the society, individuals are actively engaged ineconomic, social, and cultural activities, new scientific discoveries are incessantly made, andnew products are continuously introduced still with the natural environment being preservedat the sustainable state. [Regarding Mill's stationarity state, one may be referred to an excellent
discussion by Daly (1977, 1999).]
We may term such an economic system as institutionalism, if we adopt the concept
originally introduced by Thorstein Veblen in his classic The Theory of Leisure Class, (Veblen,
1899) or The Theory of Business Enterprise (Veblen 1904). It has been recently reactivated asa theory of institutions by Williamson (1985) and others, where institutions are defined by therules of games that specify the incentives and mechanisms faced by the members of the society
engaged in social activities. We would like to emphasize that it is not defined in terms of acertain unified principle, but rather the structural characteristics of an institutionalist economy,
as symbolized by the network of various components of social common capital, are determinedby the interplay of moral, social, cultural, and natural conditions inherent in the society, andthey change as the processes of economic development evolve and social consciousness
transforms itself correspondingly. Institutionalism explicitly denies the Marxist doctrine thatthe social relations of production and labor determine the basic tenure of moral, social, andcultural conditions of the society in concern. Adam Smith emphasized several times in his
Wealth of Nations (Smith, 1776) that the design of an economic system conceived of purely interms of logical consistency inevitably contradicts the diverse, basic nature of human being,
and instead he chose to advocate the merits of a liberal economic system evolved through the
democratic processes of social and political development. It is in this Smithian sense that wewould like to address the problems of the economic, social implications of social common
capital and the analysis of institutional arrangements and policy measures that ensue theprocesses of consumption and accumulation of both social common capital and private capitalthat are optimum in terms of a certain well-defined, socially acceptable sense.
Social Common CapitalSocial common capital provides members of a society with those services and institutionalarrangements that are crucial in maintaining human and cultural life. It is generally classified
into three categories: natural capital, social infrastructure, and institutional capital. These
categories are neither exhaustive nor exclusive, but they merely illustrate the nature of functions
performed by social common capital and the social perspectives associated with them.
Natural capital consists of the natural environment and natural resources such as forests,
rivers, lakes, wetlands, coastal seas, oceans, water, soil, and above all the earth's atmosphere.
Social infrastructure is another important component of social common capital. It consists ofroads, bridges, public transportation systems, water, electricity, and other public utilities,
communication and postal services, among others. Social common capital may also include

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institutional capital such as hospitals and medical institutions, educational institutions,financial and monetary institutions, cultural capital, judicial and police systems, public
administrative services, and others. They all provide members of a society with those services
that are crucial in maintaining human and cultural life, without being unduly influenced by thevicissitudes of life.
Social common capital in principle is not appropriated to individual members of thesociety, but rather is held as common property resources to be managed by the commons inquestion, without, however, precluding the private ownership arrangements. Nor is it to becontrolled bureaucratically by the state. Thus, a problem of crucial importance in the theory ofsocial common capital is to devise the institutional arrangements that result in the managementof social common capital that is optimum from the social point of view. The theory of social
common capital provides us an analytical framework in which economic implications of social
common capital are fully examined and explored the conditions under which the intertemporal
allocation of scarce resources, including both social common capital and private capital, is
optimum from the social point of view.
Natural Capital
Natural capital consists of the natural environment and natural resources such as forests,
rivers, lakes, wetlands, coastal seas, oceans, water, soil, and the earth’s atmosphere. They all
share the common feature of being regenerative, subject to intricate and subtle forces of theecological and biological mechanisms. They provide all living organisms, particularly humanbeings, with the environment to sustain their lives and to regenerate themselves. However, therapid processes of economic development and population growth in the last several decades,with the accompanying vast changes in social and natural conditions, have altered the delicate
ecological balance of natural capital to such a significant extent that their effectiveness has
been lost in many parts of the world.
The sustainable management of natural capital may be made possible when theinstitutional arrangements of the commons are introduced, as indicated by the historical andtraditional experiences of the commons, with a particular reference to the fisheries and forestry
commons, as in detail discussed by McCay and Acheson (1987) and Berkes (1989).
However, processes of industrialization themselves, together with the ensuing changes
in cultural, social, and political conditions, have made the survival of the commons extremely
difficult. Only a handful of the commons now remain as viable social institutions in which
economic activities are effectively conducted with natural capital prudently sustained.
Social Infrastructure, Institutional Capital, and Cultural CapitalSocial infrastructure is another important component of social common capital. It
consists of roads, bridges, public mass transportation systems, water, electricity, and otherpublic utilities, communication and postal services, and sewage, among others. Social common
capital may also include institutional capital such as hospitals and medical institutions,educational institutions, judicial and police systems, public administrative services, financial
and monetary institutions, and so on.

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Cultural capital may also be regarded as an important component of social common
capital, as extensively examined in particular by Throsby (2001). Cultural capital comprises
those capital assets in society that yield goods and services of cultural value, including
artworks, historic buildings, and so on, together with intangible assets such as language,
traditions, and others.
Social Capital
A word of caution may be necessary regarding the concept of social capital, originallyintroduced by James Coleman, Robert Putnam, and others. The standard reference is Putnam(2000) and an extensive discussion is reported in Dasgupta and Serageldin (2000). Social
capital refers to intangible social networks and relationships of trust that exists in communities.
It means the connectivity of the social network each individual is embedded in, and facilitates
the exchange of information and encourages reciprocal altruism. It is an interesting andfascinating concept, molded in the traditional framework of sociology and political science,
though in good contrast with that of social common capital as envisioned in this book. [Seealso Arrow (2000) and Solow (2000).]
Sustainability
Social common capital is held by the society as common property resources to be managed bysocial institutions of various kinds that are entrusted on a fiduciary basis to maintain social
common capital in good order and to distribute the services derived from it equitably. Social
common capital is in principle not appropriated to individual members of the society, without,
however, precluding the private ownership arrangements. Nor is it to be controlledbureaucratically by the state. Thus, a problem of crucial importance in the theory of social
common capital is how to devise the institutional arrangements that result in the managementof social common capital that is optimum from the social point of view.
The concept of sustainability is formally defined as the efficient pattern of intertemporal
allocation of private capital and social common capital for which the imputed price of social
common capital is assumed to remain at the stationary level at each time. As the imputed priceof social common capital expresses the subjective value of social common capital eachgeneration inherits from the past, the concept of sustainabililty thus defined may be regarded
as expressing in formal terms the concept of the stationary state as envisioned by John Stuart
Mill. It is closely linked to that introduced by Pezzey (1992), in which the utility remains
constant over time. On the other hand, it is not apparent to see the link with Page’s concept ofsustainability which emphasizes maintaining life opportunity from generation to generation(Page, 1997).
Externalities
One of the intricate problems inherent in social common capital concerns the phenomenon of
externalities. Since the classic treatment of Pigou (1925) and Samuelson (1954), the economists
were always puzzled by the phenomenon of externalities, but it was put aside as peripheral andnot worthy of serious consideration. Concern with environmental issues, however, has changed161this habit of economic thinking, and a large number of contributions have appeared where theissue of externalities occupies a central place, both from theoretical and empirical points ofview. The analytical treatment of externalities in the theory of social common capital is adopted
from that introduced in Uzawa (1974a, 1974b, 1974c, 1975, 1982, 1992a), in which two kindsof externalities, static on the one hand, and dynamic on the other, are recognized with respect
to the services derived from social common capital. Static externalities occur when the levelsof marginal products or utilities of individual economic units are affected by the aggregate
amount of services of social common capital used by all members of the society, assumingthat the stock of social common capital is kept at a constant level. Dynamic externalities, on
the other hand, are observed when the conditions of production and consumption for eachindividual economic unit change over time due to changes in the stock of social common
capital, either accumulation or depreciation, that occurs today.
The Commons
The natural environment, or rather natural capital, has been subject to an extensive examinationin the literature, particularly with respect to the fisheries and forestry commons. The analysisof the fisheries commons was initiated by Gordon (1954) and Scott (1955), and was later
extended to the general treatment within the framework of modern capital theory by Schaefer(1957), Crutchfield and Zellner (1962), Clark and Munro (1975), and Tahvonen (1991),
among others. The simple dynamic model of the natural environment introduced in Uzawa(2003) that has the case of the fisheries commons primarily in mind belongs to the lineage of
their approach. It is an extension of the analysis developed by Uzawa (1992b), where it is used
to examine critically the theory of the tragedy of the commons, as advanced by Hardin (1968).
The model of the natural environment developed in Uzawa (1992b) may be applicableto the dynamics of the forestry commons as well. As with the fisheries commons, the dynamics
of the forestry commons has been extensively analyzed in the literature. Indeed, it was made acentral issue in economic theory by Wicksell (1901), who developed the core of modern
capital theory with the analysis of forests as the prototype. The most recent contribution toforestry economics was made by Johansson and Lögren (1985).
The theory of social common capital provides us with the theoretical framework within
which the role of institutional arrangements concerning social, cultural, and naturalenvironments in the processes of resource allocation and income distribution may be effectively
analyzed. Social common capital is generally composed of those scarce resources that are inprinciple neither privately appropriated nor subject to market transactions. Social common
capital or the services derived from it play a crucial and indispensable role for each memberof the society in concern to conduct at least the minimum level of human and dignified life.
The management of social common capital thus is entrusted on a fiduciary basis to autonomous
social institutions, to provide the environmental framework within which all human activities
are conducted and allocative mechanism through market institutions work. The analysis ofsocial common capital, as introduced by Uzawa (1974a, 1989, 1991a, 1991b) and recently
developed in Uzawa (1998, 2003, 2005), may be applied to discuss some of the difficulties
arising out of the tragedy of the commons phenomenon. Particularly, the institutional

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arrangements whereby the sustainable use of resources in the commons may ensue are
examined in terms of the concept of imputed price of social common capital.
The society generally allocates a significant portion of scarce resources for theconstruction and maintenance of social common capital, particularly social infrastructure, andone of the central issues in the dynamic theory of social common capital is to find the criteria
by which scarce resources are allocated between investment in social common capital on the
one hand and production of goods and services which are transacted on the market on theother.
In the theory of social common capital, we formulate an analytical framework in which
economic implications of social common capital of various kinds are examined and explore
the conditions under which the intertemporal allocation of social common capital and privately
owned scarce resources is optimum from the social point of view. It may be regarded as thegeneral equilibrium versions of those formulated in Uzawa (1992b), where, however, thephenomenon of externalities is not explicitly discussed. In the dynamic models of social
common capital introduced in Uzawa (2005), the phenomenon of externalities, both static anddynamic, is incorporated in the construct of the model and their implications for the processesof resource allocation, including both social common capital and privately managed scarce
resources, are fully explored. The sustainable allocation of scarce resources occurs when the
imputed prices associated with the accumulation and use of social common capital are used as
signals in the allocative processes. Privately owned scarce resources and goods and services
produced by private economic units are allocated through the mechanism of market institutions.
In the dynamic models concerning the accumulation of social common capital referred
to above, the technological conditions are assumed to remain largely constant, independent of
the accumulation of the stock of social infrastructure. Technological progress induced by theavailability of social infrastructure and the accompanying increase in investment activities inthe stock of privately owned scarce resources may be regarded as the central issue in the theoryof social infrastructure, particularly within the context of developing nations, also examined
in detail by Hirschman (1958) in terms of the concept of social overhead capital. Social
overhead capital as defined by Hirschman comprises those basic services without whichprimary, secondary, and tertiary productive activities cannot function. In its wider sense, social
overhead capital includes all public services from law and order through education, publichealth to transportation, communications, power and water supply, as well as agricultural
overhead capital such as irrigation and drainage systems. Thus the theory of social common
capital introduced in Uzawa (2005) may be regarded as an extension of Hirschman’s conceptof social overhead capital, in which natural resources are included in addition to social
infrastructure and institutional and cultural capital.
The theory of social common capital may also be regarded as an extension of the twosector models of capital accumulation originally introduced by Uzawa (1962, 1963, 1964).
Similarly, the problems of designing institutional framework in which the optimum allocationof both social common capital and privately owned scarce resources may be realized are
crucial in any attempt toward practical implementations of the theory of social common
capital.

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When we include all components of social common capital in a particular nation, thesocial institutions entrusted on a fiduciary basis with their management constitute the public
sector in the broadest sense of the word. The aggregate expenditures incurred by all thesesocial institutions are nothing but the governmental expenditures, either on the current accountor on the capital account. Thus, the problem we address may be interpreted as that of devising
an institutional framework in which the ensuring governmental activities are optimum fromthe social point of view.
Environmental Problems
In the last several decades, we have observed a significant change in the nature of environmental
problems and the economic, social, and cultural implications that the degradation of thenatural environment has brought about. During the 1960s and in the early 1970s, our primaryenvironmental concern was with the disruption of the environment and the ensuing hazard tohuman health that were caused by the rapid processes of industrialization and urbanization,
both of which were taking place at an unprecedented high pace in many parts of the world. The
environmental damages were mainly caused by the emission of chemical substances such as
sulfur and nitrogen oxides that themselves are toxic and hazardous to human health. In recent
years, however, we have become increasingly aware of the extensive degradation of the global
environment, as exemplified by such phenomena as global warming, the extensive depletionof tropical rain forests, with the accompanying loss of biodiversity, and pollution of the oceans.
The global environmental problems are primarily caused either by the imprudent use andexcess depletion of the natural resources or by the emission of those chemical agents such ascarbon dioxide in the case of global warming which by themselves are neither harmful tohuman health nor hazardous to the natural environment, but, on the global scale, they contributeto the atmospheric instability and global disturbances.
As for the industrial pollution and similar environmental problems that were rampant
and wide spread in the 1960s, the causal relationships were fairly easy to recognize, both fromthe social and scientific points of view, and the remedial measures were not too difficult totake, both from economic and political points of view, although one has to be aware of asignificant number of major environmental problems in the 1960s such as the case of the
Minamata disease that left a state of extreme social injustice for the victims.
On the other hand, the global environmental problems concern the degradation anddestabilization of the natural environment covering an extensive area, with a large number ofpeople involved. They not only affect the current generation, living in developing as well as indeveloped countries, but also all future generations are irreversibly involved as exemplified by
the phenomena of global warming, the loss of biodiversity, and pollution of the oceans.
The global environmental problems are also noted for the intricate and subtle
interrelationships that exist between human activities, both economic and cultural, and theecological and biological processes in the natural environment. Traditional economic theory
has not paid sufficient attention to the damages and threats to the natural environment,
particularly with respect the stability and resilience of regenerative processes, that are exerted
by industrial, urban, and other human activities. Instead, it has treated the natural environment

164

simply as the stock of natural capital, from which various natural resources are extracted to be
used as factors of production for the productive processes in the economy.
However, in the economic analysis of fisheries, forestry, and other agricultural activities,
a large number of studies have been made, where the implications of economic activities forthe stability and resilience of the natural environment, either in the fisheries ground or inforestry commons, are explicitly recognized, and the patterns of resource allocation that are
dynamically optimum in terms of the intertemporal preference ordering prevailing within thesociety are analytically examined, as in detail described, for example, by Johansson and Lögren
(1985), and Clark (1990).
When we examine the interaction of economic activities with the natural environment,
one of the more crucial issues concerns the organizational characteristics of the social
institutions that manage the natural environment, in conjunction with their behavioral andfinancial criteria, which realize those patterns of the repletion and depletion of the naturalenvironment and the levels of economic activities that are dynamically optimum from thesocial point of view. The dynamically optimum time-paths generally converge to the long-run
stationary state at which the processes of economic activities are sustained at those levels
that are at the optimum balance vis- vis the natural environment, and the problem we face
now concerns the organizational and institutional arrangements for sustainable economic
development.
Such an organizational framework may be provided by the institutional arrangementsof the commons, as have been shown in terms of a large number of historical, traditional, andcontemporary commons documented, for example, in McCay and Acheson (1987) and Berkes(1989). The commons discussed by McCay and Acheson (1987) and Berkes (1989) refer to avariety of natural resources extending from fisheries, forestry, grazing grounds, to irrigationand subterranean water systems. The processes of industrialization, however, together with theaccompanying changes in economic, social, and cultural conditions prevailing in modern
society, have made these commons untenable both from economic and social points of view,and the survival of the majority of the traditional commons have become extremely difficult.
Agriculture and Social Common Capital
Agriculture concerns not only economic, industrial aspects, but also virtually every aspect ofhuman life: cultural, social, and natural. It provides us with food and the raw materials such aswood, cotton, silk, and others that are indispensable to sustain our existence. It also hassustained, with few exceptions, the natural environment such as forests, lakes, wetlands, soil,
subterranean water, and the atmosphere.
Agriculture made possible a harmonious and sustainable interaction between natureand mankind through the social institution of the rural community in many East Asian
countries, particularly in Japan. This does not, however, necessarily imply that the traditional,
conventional social institutions prevailing in most of the agricultural communities are
justifiable or desirable.
The land ownership probably is the single most serious and complex problem in Japan.
Japan is noted for a high population density and for a long history of agricultural development.

165

Land had been cultivated literally to the top of the mountains and forestry had been subject tomyriads of property right arrangements. The modern Civil Law, enacted in 1898, adopted an
extremely narrow definition of land ownership, voiding traditional forms of property ownershipfor villages as the commons to manage and control the natural resources to be directly or
indirectly obtained from land, forests, and other natural environments. The conflict between
the modern Civil Law and traditional institutions of the commons had occupied the majorityof the legal suits brought before the Grand Court before the Second World War. The land
reform measures implemented during the period occupied by the Allied Powers did not help
resolve the dilemma either. The postwar Japan has seen a large number of conflicts, occasionallyserious, between the State and citizens, mostly farmers, in the processes of land expropriation
for the construction of infrastructure facilities.
The Narita Airport Problem is probably one of the thorniest problems Japan has facedsince the end of the Second World War involving infrastructure construction, and brought withit a far more extensive damage to the society than the scope and magnitude of the infrastructure
facilities originally planned would deserve. It began on July 4, 1966, when the Cabinet meeting
decided to construct the New Tokyo International Airport at Sanrizuka in Narita, without priorconsultation with the inhabitants in the community or the local authorities, and the thirty yearsof the conflict claimed close to ten thousand casualties on both sides, leading to a large numberof human tragedies, unprecedented in peacetime Japan. The conflict was peacefully brought
to an end on May 24, 1993, when the Minister of Transportation and the representatives of the
Airport Opposition Alliance jointly declared that neither side would resort to any forcefulmeasures and instead would cooperate in devising a comprehensive regional development
plan, including the completion of the Airport, that would be acceptable to all those involved.
As part of the peaceful resolution of the Narita Conflict, a commission was appointed to draw
a blueprint for the Sanrizuka Agricultural Commons that would serve not only as the coreorganization for the comprehensive regional development plan, but also as the prototype of theorganizational renovation to vitalize the Japanese agriculture.
Medical Care as Social Common Capital
When medical care is regarded as social common capital, every member of the society isentitled, as basic human rights, to receive the best available medical care that the society canprovide, regardless of the economic, social, and regional circumstances, even though this does
not necessarily imply that medical care is provided free of charge. The government then isrequired to compose the overall plan for the regional distribution of various types of medical
institutions and the schooling system to train physicians, nurses, technical experts, and otherco-medical staff to meet the demand for medical care that would result in the management of
the medical care component of social common capital that is socially optimum. It is thenrequired to devise institutional and financial arrangements under which the construction andmaintenance of the necessary medical institutions are realized and the required number of
medical professionals are trained without social or bureaucratic coercion. It should beemphasized that all medical institutions and schools basically are private and the management
is supervised by qualified medical professionals.

166

The fees for medical care then are determined based on the principle of marginal social
costs pricing, not through merely market mechanism. It may be noted that, the smaller thecapacity of the medical component of social common capital, the higher are the fees charged
to various types of medical care services. Hence, in composing the overall plan for the medicalcare component of social common capital, we must explicitly take into account the relationships
between the capacity of the medical care component of social common capital and the imputed
prices of medical care services. The socially optimum plan for the medical care component ofsocial common capital then is one where the resulting system of imputed prices of various
types of medical care services leads to the allocation of scarce resources, privately appropriatedor otherwise, and the accompanying distribution of real income that are socially optimum, inthe sense as will be in detail discussed in this chapter.
When, however, physicians provide medical care services to those whose health isimpaired due to diseases or injuries, the very nature of medical care necessarily implies thatthe processes of diagnosis and curative treatment may occasionally involve the impairment,
physical or mental, of patients, whereas the curative effects are not necessarily absolutely
guaranteed. If an ordinary person were to perform such conduct, he or she would certainly becriminally prosecuted. Only qualified physicians and co-medical staff are immune from suchprosecution, because not only are they licensed to practice medical care, but also they aresupposed, as being trusted on a fiduciary basis the management of the medical care componentof social common capital, to obey professional codes of conduct truthfully and to take care ofpatients with the best scientific knowledge and the highest available technical proficiency ofthe medical sciences today. For such presuppositions to be fulfilled, it is not only necessarythat arrangements are institutionalized whereby the provision of medical care and the conductof each physician are properly monitored, in terms of peers’ review or some other means, butalso it is required that an overall system of incentive mechanisms, in terms of social esteem
and compensatory scheme, must be established whereby it becomes physicians’ own selfinterest to obey professional codes of conduct truthfully and to seek for the best scientificknowledge and the highest available technical proficiency of the medical profession.
Under such utopian presuppositions, total expenditures for the construction andmaintenance of the socially optimum medical care component of social common capital thenexceed, generally by a large amount, the total fees paid by the patients under the principle ofmarginal social cost pricing. The resulting pattern of resource allocation and real income
distribution, however, is optimum from the social point of view. The magnitude of the deficits
with respect to the management of the socially optimum medical care component of social
common capital then may appropriately be regarded as an index to measure the relative
importance of medical care from the social point of view.
Education as Social Common Capital
Education, together with medical care, constitutes the most important components of social
common capital and, as such, may require the institutional arrangements substantially different
from those for the standard economic activities that are generally pursued from the view pointof profit maximization and subject to transactions on the market. Whereas medical care is167

provided for those who are not able to perform ordinary human functions due to impaired
health or injuries, education is provided to help young people develop their human abilities,
both innate and acquired, as fully as possible. Both activities play a crucial role in enabling
every member of the society in concern to maintain his or her human dignity and to enjoy
basic human rights as fully as possible. If either medical care or education is subject to market
transactions based merely on profit motives or under the bureaucratic control by stateauthorities, their effectiveness may be seriously impaired and the resulting distribution of real
income may tend to become extremely unfair and unequal. Thus the economics of educationand medical care may better be carefully analyzed within the theoretical framework of social
common capital. The role of education as social common capital within the analyticalframework of the theory of social common capital may be effectively analyzed.
In describing the behavior of educational institutions, we occasionally talk about the
maximization of net value, it is used in the sense that the optimum level of education and themost efficient pattern of resource allocation in the provision of education are sought, strictlyin accordance with professional disciplines and ethics.
We consider a society which consists of a finite number of individuals and two types of
the institutions; private firms that are specialized in producing goods that are transacted on themarket, on the one hand, and social institutions that are concerned with the provision of
education as services of social common capital, on the other.
All social institutions are characterized by the properties that all factors of productionthat are needed for the professional provision of education are either privately owned, or if not,they are managed as if privately owned. However, the social institutions in charge of education
are managed strictly in accordance with professional discipline and expertise knowledge.
Subsidy payments are made for the provision of education, with the rate to beadministratively determined by the government and announced prior to the opening of themarket. The fees paid to social institutions for the provision of education exceed, by the subsidy
rate, those charged for the attainment of education. Given the subsidy rate for the provision of
education, the two levels of fees are so determined that the general level of education provided
by all educational institutions in the society is precisely equal to the total level of education
attained by all individuals of the society. One of the crucial roles of the government is todetermine the subsidy rate for education in such a manner that the ensuing pattern of resource
allocation and income distribution is optimum in a certain well-defined, socially acceptablesense.
Global Warming and Sustainable Development
The atmospheric concentration of greenhouse gases, particularly of carbon dioxide, has been
increasing since the times of the Industrial Revolution, with an accelerated rate in the last three
decades. According to the IPCC reports, it is estimated that, if the emission of carbon dioxide
and other greenhouse gases and the disruption of tropical rain forests were to continue at thepresent pace, global average air surface temperature toward the end of the twenty-first century
would be 3 - 6 C higher than the level prevailing before the Industrial Revolution, resulting indrastic changes in climatic conditions and accompanying disruption of the biological and168

ecological environments.
The problems of global warming are genuinely dynamic. From past human activities
we inherit an excess concentration of atmospheric carbon dioxide, and the choices we maketoday concerning the use of fossil fuels and related activities significantly affect all future
generations through the phenomenon of global warming that is brought about by theatmospheric concentrations of carbon dioxide due to the combustion of fossil fuels today.
Thus, we have to take into account explicitly the changes in the welfare levels of all future
generations caused by the increases in the atmospheric accumulations of carbon dioxide.
In Uzawa (2005), we are primarily concerned with the economic analysis of global
warming within the theoretical framework of dynamic analysis of global warming, as
introduced in Uzawa (1991b, 2003). We are particularly concerned with the policy arrangementsof the proportional carbon tax scheme under which the tax rate is made proportional either tothe level of the per capita national income of the countries where greenhouse gases are emitted
or to the sum of the national incomes of all countries in the world. We first consider the casewhere the oceans are the only reservoir of CO2 on the earth, and then we explicitly take into
consideration the role of the terrestrial forests in moderating processes of global warming byabsorbing the atmospheric accumulation of CO2, on the one hand, and in affecting the level of
the welfare of people in the society by providing a decent and cultural environment, on theother.
The rate of anthropogenic change in the atmospheric level of CO2 is determined by the
combustion of fossil fuels and is closely related to the levels of production and consumption
activities conducted during the year observed.
The impact index function (V) of the following form is postulated:^^(V) = (V - V ) ß, 0 < V < V,^
Where V is the critical level of the atmospheric accumulation of CO2 and ß is the sensitivity^
parameter (0 < ß < 1). The critical level V of the atmospheric accumulation of CO2 is usually^assumed to be twice the level prevailing before the Industrial Revolution; that is, V = 600 GtC.
The impact coefficient (V) is given byß.
(V) = ^
V -V
Proposition. Sustainable time-paths (Vt) of the atmospheric accumulations of CO2 are obtained
as the competitive market equilibrium under the following system of proportional carbon
taxes for the emission of CO2 and tax-subsidy measures for the reforestation and depletion of
resources of forests:(i) In each country v, the carbon taxes are levied with the rate
per capita national income yv:
v

=

(V)
+µ

v

that is proportional to they v,

where (V) is the impact coefficient of global warming, is the social rate of discount, and µ169

is the rate at which atmospheric CO2 is annually absorbed by the oceans.
(ii) In each country v, tax-subsidy arrangements are made for the depletion of resources andreforestation of forests with the rate v that is proportional to the national income yv, to begiven byv=

1

[ v(Rv) + v

(V) v
]y,
+µ

where v(Rv) , v are, respectively, the impact coefficient and carbon sequester rate for forests
in country v.
International Fund for Atmospheric Stabilization
The divergence in economic performance between developed countries and developing
countries has steadily widened in the last several decades, and various institutional and policy
measures that have been devised internationally or bilaterally have not had much impact innarrowing the gap between these two groups of countries. The introduction of the proportional
carbon tax system as envisioned here, in spite of the implicit recognition of the equity aspect
in its design, may tend to worsen the relative position of developing countries, at least in the
short-run. It would be desirable, therefore, to supplement the carbon tax system with theinternational redistributive scheme that would have significant impact in narrowing the gap
between the stages of economic development of various countries involved.
The International Fund for Atmospheric Stabilization is an institutional framework inwhich it is possible to combine an international arrangement to stabilize atmosphericequilibrium with a redistributive scheme to help developing countries to accelerate processesof economic development.
The International Fund for Atmospheric Stabilization presupposes that each country
adopts the proportional carbon tax system under which emissions of carbon dioxide and othergreenhouse gases are charged a levy evaluated at the imputed prices proportional to the percapita level of national income and a charge (or a subsidiary payment) is made for the depletion(or the afforestation) of terrestrial forests, again based upon the evaluation at the imputed
prices of terrestrial forests that are proportional to the per capita level of national income, as
in detail discussed in Uzawa (2003, 2005).
The tax revenues from the proportional carbon tax system are principally put into thegeneral revenue account of each government, preferably to be partly earmarked for the
purposes of restoring the natural and ecological environments, and for encouraging private
economic agents to develop those technological and institutional knowledge that are crucial inrestoring equilibrium conditions in the global environment.
Each country then transfers a fixed portion, say 5%, of the net revenue from the carbon
tax system to the International Fund for Atmospheric Stabilization. The total amounttransferred to the International Fund for Atmospheric Stabilization from individual countries
then would be allocated to developing countries according to a certain predetermined schedule,
properly taking into account the per capita levels of national income and the size of population.

170

Developing countries may use the amounts transferred from the International Fund for
Atmospheric Stabilization for the purposes which they think appropriate, preferably forcompensating those who would suffer from the phenomena of global environmental
disequilibrium and incur the hardships by the implementation of the carbon tax system, for
restructuring industrial organizations and social infrastructure, and for introducing
substitutional energy sources and energy-saving technologies.
It is difficult to imagine that the International Fund for Atmospheric Stabilization orsimilar international arrangements on the global scale may be instituted in any immediate
future. Whether such international arrangements may be effectively implemented or not
depends to a significant extent upon the degree of awareness on the part of the general publicconcerning the enormous burden and costs future generations will have to suffer from thephenomena of global warming and other global environmental disequilibrium.
The strenuous effort by a large number of geo-scientists, ecologists, and other scientists
to clarify the mechanism of global warming and to identify the specific implications of global
warming and other environmental issues for ecological, biological, social, and cultural life on
Earth has had a significant impact to the awareness and consciousness of the general public
and the national governments. The numerous conferences and symposia organized by various
international organizations, such as the 1991 Rio Conference and the Intergovernmental Panelon Climate Change, particularly the Kyoto Protocol of 1997, have substantially altered theperception of the international community as regards the plausibility and danger of global
warming and other atmospheric disequilibria.
All these help the national governments involved to search for those policy andinstitutional arrangements that will make the practical implementation of the International
Fund for Atmospheric Stabilization or similar international agreements feasible from
economic, social, and political points of view. It would not be too optimistic to expect to havethe International Fund for Atmospheric Stabilization or a similar framework to be instituted
within a foreseeable period, though not in the immediate future.

171

A Hypothetical CaseA hypothetical case of the incidences of the proportional carbon taxes under the system of
proportional carbon taxes for the emission of CO2 and tax-subsidy measures for the reforestationand depletion of resources of forests are presented, all in terms of the statistical data of 2005
(in US$).
Table 1
Incidences of Proportional Carbon Taxes (2005) with
the Coefficient of Proportion 0.01 Including All Radiative Forcing Agents (RFA)Countries

National Income
per capita [Dollars]

RFA Increase
per capita (Ct)USA
Canada42,00034,000

5.90
6.20

420
340

2,500
2,100

UK
FranceGermany
Italy
The Netherland
SwedenNorweyFinlandDenmark

32,00031,00031,00028,00035,00032,00048,00031,00034,000

3.00
2.20
3.20
2.20
3.60
1.90
1.60
2.00
3.20

320
310
310
280
350
320
480
310
340

950
680
980
600
1,200
610
760
610
1,100

Indonesia
Japan
Korea
Malaysia
Philippine
Singapore
Thailand
India
China

3,100
31,00021,00011,0003,200
40,000
6,900
2,200
4,100

1.70
2.70
2.60
1.90
0.30
3.20
1.20
0.30
1.10

30
310
210
110
30
400
70
20
40

50
840
560
210
8
1,300
80
7
40

Australia
New Zealand

33,00023,000

7.10
3.50

330
230

2,300
790

Sources: UNFCCC, World Development Indicators, etc.

172

Imputed Price Carbon Taxes[Dollars / ct] per capita [Dollars]

Table 2
Incidences of Tax-Subsidy Measures for the Reforestation and
Depletion of Resources of Forests (2005)
Country

Forest and Woodlands Net Annual Reforestation Imputed Price[Million ha][1000 ha][Per ha]Assessment
Per Capita
Total[Million Dollars] [Dollars]

USA
Canada

303
310

159
0

42,00034,000

6,627
0

22
0

UK
FranceGermany
Italy
The Netherland
SwedenNorwayFinlandDenmark

3
16
11
10
0
28
9
23
1

10
41
0
106
1
11
17
5
3

32,00031,00031,00028,00035,00032,00048,00031,00034,000

321
1,264
0
2,929
35
351
808
153
102

5
21
0
50
2
39
175
29
19

Indonesia
Japan
Korea
Malaysia
Philippine
Singapore
Thailand
India
China

88
25
6
21
7
0
15
68
197

−1,871
−2
−7
−140
−157
0
−59
29
4,058

9,300
31,00021,00033,0009,600
40,00020,7002,200
4,100−17,120−62−149−4,679−1,5070−1,22064
16,678

−77
0
−3
−179
−18
0
−19
0
13

Australia
New Zealand

164
8

−193
17

33,00023,000−6,319
388

−310
94

Tropical rain forest states: Indonesia, Malaysia, Philippine, and Thai
Source: World Resources Institute, etc.
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Profile

Lord (Nicholas) Stern of Brentford
Professor, The London School of Economics
Education and Academic and Professional Activities
1946
Born in U.K.
Bachelor of Arts degree in mathematics at Cambridge (1967) , and Doctor ofPhilosophy in economics at Oxford (1971)
1970-1978 Lecturer in Economics, Oxford University
1978-1986 Professor of Economics at University of Warwick
1986-1993 Professor of Economics at London School of Economics
1994-1999 Chief Economist and Special Counsellor to the President of the European Bankfor Reconstruction and Development
2000-2003 Chief Economist and Senior Vice-President of the World Bank
2003-2007 Second Permanent Secretary at H. M. Treasury,
Head of the Government Economic Service, appointed to lead the writing of theReport of the commission for Africa 2004-5, conduct a review of the economics
of climate change, which led to the Stern Review 2006: The Stern Review was
released on 30 October 2006
2007I.G. Patel Professor of Economics and Government at London School of
Economics, Director of the newly created India Observatory within the Asia
Research Centre at LSE, and Chair of the Grantham Research Institute on
Climate Change and the Environment
Lord Stern of Brentford, cross-bencher in the House of Lords(As of June, 2009)
Lord Stern released the Stern Review on the Economics of Climate Change on October 30,
2006, which discusses the effect of climate change and global warming on the world economy
with the aid of recent scientific data and economic models, and has since published extensivery
on the subject, including the Richard Ely Lecture at the American Economic Association(American Economic Review May 2008) and his recent book (entitled The Global Deal in the
USA and A Blueprint For A Safer Planet, UK) To avoid the devastating effect of global
warming, the Review made it clear that the world requires urgent action to implement global
policies: cooperation from all countries is crucial. The Review stresses the concept of equity,
including, both the responsibility of developed countries to developing countries andintertemporal considerations, the responsibility of the current generation to provide asustainable planet for future generations.
The Review was discussed at the Conferences of the Parties to the United Nations
Framework Convention on Climate Change in 2006 and 2007 (COP12 and COP13) and176

received much public attention. Backed by the recent scientific data and economics, Lord
Stern’s work makes a significant contribution, not only through promoting the understandingof academic research, but also by informing the public about the potentially immense toll ofglobal warming. The Review also had a significant impact on governments and policy makers
by proposing viable policies to mitigate and adapt to climate change. Lord Stern continues totake every opportunity to discuss and influence policy makers across the globe, this includes
assisting concerned parties to understand the consequences of global warming andunderstanding of the necessity of urgent action.
From Mathematics to Development Economics
Lord Stern was born on 22 April 1946 in London UK. He earned his Bachelor of Arts degree
in mathematics at Peterhouse, Cambridge, and his Doctor of Philosophy in economics at
Nuffield College, Oxford. His experiences in Mexico in 1964, Turkey and Iran in 1966 andEthiopia in 1967 generated a lifelong interest in development economics, and particularly
with poverty and the study of the development process in low-income countries. From 1969,early on his career, he began research in development economics, based first in Kenya andthen in India, including the Uttar Pradesh village of Palanpur which he has visited regularly
since 1974, researching the economic transformation of the village and the close relationshipbetween overcoming poverty and environmental issues and climate changes have been key
issues for his work, including in the Stem Review.
He was a lecturer at Oxford University from 1970 to 1977, and served as a Professorof Economics at the University of Warwick from 1978 to 1987. He taught from 1986 to
1993 at the London School of Economics, becoming the Sir John Hicks Professor of
Economics. From 1994 until 1999 he was the Chief Economist and Special Counsellor to
the President of the European Bank for Reconstruction and Development. He was the Chief
Economist and Senior Vice-President of the World Bank from 2000 to 2003 where continued
his work on the problems of world poverty.
In 2003 Lord Stern became Second Permanent Secretary at H. M. Treasury, initiallywith responsibility for public finances, and head of the Government Economic Service. He led
the writing of the Report of the commission for Africa 2004-5 and in July 2005 he wasappointed by the UK government to conduct a review on the economics of climate change,
which led to the publication of the Stern Review on 30 October 2006. The Review gained
global media attention for its stark assessment of climate change and examination ofcomprehensive policies to prevent the likely outcomes of unmitigated climate change. Lord
Stern attended COP-13 in Nairobi in Kenya in 2006 and COP-14 in Bali, Indonesia (2007
United Nations Climate Change Conference) to promote the understanding of the Review
worldwide.
In June, 2007 Lord Stern became the first holder of the I. G. Patel Chair at the London
School of Economics and Political Science. In 2008 he was appointed Chair of the Grantham
Institute for Climate Change and the Environment, and head of the newly created India
Observatory within the Asia Research Centre at LSE. Sir Nicholas Stern became Lord Sternof Brentford in December 2007, appointed to the House of Lords.

177

Measures Proposed to Deal with Global Warming
The Stern Review is the most comprehensive review on the economics of Climate change. The
Review analyses the economic costs of climate change, the costs and benefits of actions to
reduce emissions, and considers policies to address climate change. The Review provides
clear conclusions concerning the consequences of unmitigated climate change: if we take noaction to control emissions and continue along a business as usual (BAU) pathway, we run
severe risks of a transformation of the planet which would lead to large-scale migration
involving hundreds of millions of people and global conflict. This is a challenge of risk
management of the highest order of importance. Expressed in more narrow cost-benefit
analysis terms the Review estimated total costs over next two centuries equivalent to at least
5% (up to 20%) of world GDP each year.*1 Moreover, given the direct impact on the environmentand human health, some recent scientific evidence suggests a disproportional share of theclimate change burden will fall on the poor regions of the world.
By contrast, if we act now, the cost of action to avoid the most severe impacts of climatechange are estimated at around 1% to*2 of world GDP each year. New technologies andinnovation can enable the world to avoid a climate disaster and maintain strong economic
growth. Attempting to continue with high-carbon growth will not only severely damage theplanet and humans and other life, it will stop or reverse growth.
To cope with the significant challenge of climate change, the Review concluded thata shared global perspective on the urgency of the climate change is required; long-term
policy goals to address global warming, and an international approach based on multilateralframeworks and coordinated action, are essential to respond to the vast scale of the
Challenge.
To control global warming, the Review examines national and international policies
and indicates that four elements of policy are required. The first is carbon pricing policy
worldwide, through taxation, emission trading or (an implicit price) regulation. The second istechnology development policy, to encourage low-carbon and high-efficiency product technologies. Third is the policy to remove barriers to energy efficiency, and to inform and educate
firms and individuals on possibilities. The fourth policy response is adaptation policy to deal
with the climate change to which we are already committed.
An effective response to climate change will depend on creating the conditions forinternational collective action, for example effective policies to halt deforestation across theglobe. After the release of the Review, Lord Stem has traveled extensively across the world topromote policy to curb emissions.*3
Lord Stern argues that developed countries are responsible for the bulk of the current
stock of greenhouse gases in the atmosphere. They are also richer and have better access totechnology. Therefore, they have a responsibility to lead efforts to reduce emissions and to findways of sustaining development in a more hostile climate. They must do this directly throughtheir own action and providing finance, directly or through trading for action in developing
countries. In addition, given that developing countries will be responsible for the majority of
the increase in greenhouse gas emission in the future, the sharing of low-carbon technology

178between developed countries and developing countries is an essential requirement of any
effective policy response.
Preservation of the global environment is indispensable to sustain the development of
the world economy and the future welfare of society. It is the responsibility of the current
generation to hand a safe and sustainable planet to future generations. Stern’s work, includingin The Stern Review, clearly defines what must be achieved to fulfill our responsibility foravoiding a major climate disaster. If disastrous climate change does occur, the developing
countries and the world’s poorest will be hardest hit; to prevent this tragedy the world must act
with urgency. The clear messages in Lord Stern’s work concerning developing countries
coincide with his profound understanding of the severe situation of poor people in developing
counties and his serious concern over the bleak future in the case of climate inaction.
As an economist, Lord Stern has engaged in studies of economic development,
economic theory, tax reform, public policy, the role of the state, and the economic transition
from command to market economies. In the year 1974 and 1975, he spent 8 months in a ruralvillage in north east India; and he wrote books about development of tea plantations in Kenya
and agricultural change in India. In addition, he has written books on crime and criminal
statistics in UK, financial affairs, public development, “A strategy for development” 2002,“Growth & Empowerment: Making Development Happen” 2005, “A Blueprint for a Safer
Planet” 2009, and over 100 published academic papers.
Lord Stern expressed the pressing situation of climate change as following:“There is still time to avoid the worst impacts of climate change, if we act now, we act
strongly and we act internationally.” Already three years have passed since the Review wasmade public, urgent action to combat global warming is long overdue.
Notes*1: After the Review was published, scientists concluded that the capacity of the planet to absorb CO2 is lessthat the level assumed in the Review.
Considering this fact, Lord Stern now warns that the impact of climate Change is much larger than thereview predicted.
Guardian 25 March 2008
*2: Lord Stern mentioned that the evidence now shows that climate change is happening faster than had beenpreviously thought. Therefore emissions of greenhouse gases need to be reduced even more sharply. Owing
to this increase in greenhouse gases, it will cost up to 2% of global GDP each year to address climatechange.
Guardian 26 June 2008, New Scientist 21 January 2009
*3: Detailed policy. Developed countries to reduce their greenhouse gas emissions by at least 80%, in order for
the world to achieve an overall reduction in global emissions of 50% by 2050.
Substantial trade between countries, including rich and poor countries, in greenhouse gas emissions, to keep
down costs and help finance climate investment in developing countries.
A major reform of the Clean Development Mechanism, a Kyoto protocol mechanism that allows developing
countries to sell emission reductions, but does not penalize them for emissions themselves.
A programme, $10-15bn per year, could stop up to half the deforestation. Urgent promotion of technologies
such as Carbon Capture and Storage (CCS) is needed to curb the emissions from coal-fired electric power
generation.
Rich countries honour 0.7% GDP in aid, by 2015 to developing countries for mitigating the impact ofclimate change.
Guardian 29 November 2007179

EssayClimate Change, Public Policy anda New Wave of Technological Change
Lord (Nicholas) Stern of Brentford
Science tells us that the problems created by the accumulation of emissions of greenhousegases (GHGs) are potentially immense. Under anything approximating business-as-usual(BAU) there is a substantial probability (perhaps as high as 50%) that in a century or so global
average temperatures could reach 5ºC above the 19th century, temperatures not seen on theplanet for around 30 million years. The potential climate change associated with suchtemperatures would likely transform the lives and livelihoods of billions of people, including
where hundreds of millions could live. Resulting population movements could lead toextended, severe and widespread conflict. These are the scale of the stakes that follow from thescience.
The potential effects are subject to major uncertainties, they appear with long lags,
and the effect of a kilogram of GHG emissions is independent of whom or where are theemitters (emissions are “public bads” in the language of economics). The combination of
the magnitude, the uncertainty, the lags in the consequences, and the ‘publicness’ of thecauses, all of which follow from the science, makes the politics and economics of policy
supremely difficult (Stern, 2012).
It is hard for people to understand the scale of risk from climate change. More generally,
misunderstanding of the meaning of uncertainty and how to respond are pervasive in bothpublic and private decision-making. And the lags are compounded by ratchet effects andirreversibilities: once carbon-dioxide, the most important of the GHGs, is in the atmosphere,
it is likely to stay for many decades. Further, capital equipment and infrastructure can last fora few decades, locking in high-carbon structures. Thus if decisions are postponed until theeffects are very clear and the scale is demonstrated, it may be difficult, extremely costly, or
impossible to extricate ourselves. Or we may have to consider very risky and badly understoodalternatives such as geoengineering, which themselves may carry immense and potentiallydamaging consequences. The publicness of the cause may tempt people to leave action toothers on the articulated grounds that each individual contribution is small or they may decline
to act because they do not have confidence that others will act.
We have a problem of risk management and public action of immense importance
whose scientific logic makes the formulation, decision-making, and implementation of policy
extremely difficult. The policy challenge is, however, far from insoluble; indeed if it were, it islikely that the future for our children and grandchildren would be dire.
The building of the political will to take the radical decisions necessary will require
the widespread and shared understanding of two fundamental propositions. So far, we as
180

scientists, social scientists, and communicators have not made sufficient progress in
explaining and demonstrating these propositions. The two propositions concern first, thescale of the risks and the urgency of action and second, the nature and attractiveness of the
new energy-industrial revolution which is required. They are the subject of the second andthird sections of this brief paper. The remainder of this first section is devoted to the key
elements of economic policy for the management of climate change and broader issues ofsustainability beyond climate change.
Emissions of GHGs are not the only market failure relevant to the management ofclimate change. There are crucial market failures concerning: research, development anddeployment; networks and grids; long-term risk and capital markets; property markets; andinformation more generally. Further, there are failures in the valuing and understanding of cobenefits of action on climate change (beyond the fundamental benefits of reducing the risks ofclimate change) and embedding these in policy. These arise especially around the valuation of
ecosystem services and biodiversity issues which require close attention in their own right aswell as being profoundly affected by action or inaction on climate change.2
Each of these requires careful attention: thus the problems of market failure associatedwith promoting action on GHGs go beyond the fundamental market failure of the unpriced“externality” of emissions. That market failure is indeed fundamental and is a first and crucial
element of any policy foundation, but policy will fail to generate the scale and urgency of the
response required if it stops there. The demonstration of ideas and new techniques helps others
and thus should be fostered; networks depend on interaction and require government policy towork effectively and so on. Policy in relation to each of the failures described should be basedon careful analysis of the origins of the failure itself and thus how it can best be tackled.
Scale of the Risks and the Dangers of Delay
Global GHG emissions are currently around 50 billion tonnes of carbon dioxide-equivalent(CO2e) per annum and are growing strongly, mainly due to carbon intensive growth in thedeveloping world. As the carbon cycle is unable to absorb all of the world’s annual emissions,concentrations (stocks) of GHG emissions in the atmosphere have increased, to around440ppm of CO2e today. We are currently adding at a rate of around 2.5ppm per year. This rate
is rising. Thus if we continue with something like BAU over the course of this century wewould likely add at least 300 ppm, taking concentrations to around 750 ppm CO2e or higher atthe end of the century or early in the next. Such a path could bring somewhere in the regionof a 50-50 chance of an eventual warming of more than 5ºC relative to mid-19th century
levels3. A rise of 5ºC is immense: the planet has not seen these temperatures for more than
30 million years.
The world’s current commitments to reduce emissions, as pledged in the Appendices to
the Copenhagen Accord and confirmed in the Cancun agreement and recently at Durban, areconsistent with at least a 3ºC rise (again with roughly a 50-50 chance of above or below). The
world has not seen 3ºC for around 3 million years. Homo sapiens has experienced nothing like
this, being present for only around 200,000-250,000 years, and our civilisations, in terms ofarable farming, villages, towns and so on, have been here for only 8,000 or 9,000 years, since181

the emergence from the last ice age, i.e. during the Holocene period, during which time averagetemperatures have fluctuated in a quite narrow range of between ±1ºC.
Such warming would likely cause disruption on a huge scale to local habitats andclimates, for example through flooding, desertification, and water scarcity. Hundreds ofmillions of people, perhaps billions, would probably have to move, with the associated risks ofsevere and extended conflict. The great advances in development of the last few decades,
which have seen hundreds of millions of people in developing countries rise out of income
poverty, substantial improvements in health and life expectancy, large reductions in fertility
rates, and major advances in education and literacy, would likely be put at risk.
The scale of the risks and the inherent uncertainty around these projections clearly
imply that policy analysis of climate change must be framed in terms of risk-management.
The potential risks are huge and the associated probabilities are not small.
The uncertainty present in these projections may suggest to some that delay whilst welearn more is the best response, rather than early and strong action to reduce emissions. Thatwould be a profound mistake. First, the flow-stock process, from emissions to increasing
concentrations of GHGs in the atmosphere, with CO2, in particular, very long-lasting in theatmosphere, implies that we have a ratchet effect. Processes to remove emissions from theatmosphere or prevent solar energy reaching the earth, known as geoengineering, areundeveloped, largely untested and are also likely to involve significant risks. See the 2009
Royal Society report and Reekie and Howard (2012). Second, much of infrastructure andcapital investment can result in technological “lock-in”. With little action the long life times ofmuch of the relevant high-carbon infrastructure and network investment could imply that thelock-in could last for many decades to come. Delay is clearly very dangerous: we are alreadyat a difficult starting point in terms of concentrations of GHGs and weak action or inaction fora decade could make stabilisation of concentrations at levels that reduce the risks to acceptablelevels, in particular 2ºC, very difficult.
To embark on strong action now, if the science turns out to be wrong and the risks are
small, would leave us with a more energy efficient and bio-diverse economy and newtechnologies, even though ex post we might have wished there had been somewhat smaller
investment in these areas. On the other hand, if the science turns out to be right, and we ignore
the risks, we would be in an extremely difficult position from which it would be very hard to
extricate ourselves. Given this logic, basic decision theory or common sense points to strong
action, particularly since the science is very likely to be right. To argue for weak or delayed
action involves claiming to be pretty sure the risks are small—an extraordinary position given
200 years of cumulative scientific analysis—and/or that delay has only modest downside.
Size of the Response and the New Energy-industrial Revolution
Most nations now agree, as expressed in the current global negotiations (the agreement
at Cancun at the UNFCCC meeting of December 2010), that limiting the rise in global
temperature to 2ºC is necessary in the sense that levels above this are (sensibly) regarded as
dangerous. To achieve this goal, with a 50-50 probability, global emissions would need to fallfrom current levels to pass well below 35 billion tonnes of CO2e in 2030, and well below 20

182

billion tonnes of CO2e in 2050. These “global constraints” should be at the heart of discussions
and of the understanding of action.
Reducing absolute emissions levels by a factor of at least 2.5 in 40 years would requirea reduction in emissions per unit of output by a factor of around 8 if the world economy grows
over 40 years by a factor of around 3 (equivalent to an annual world GDP growth rate ofaround 2.8%). Emissions reductions on this scale should surely be regarded as a new energyindustrial revolution. The transition to low-carbon growth and the energy-industrial revolution
represent a far more attractive path than the high-carbon, dirty and environmentally destructive
path that has gone before. The transition is likely to be a period of innovation, creativity andgrowth, and will involve substantial investment across the economy. And low-carbon growthis likely to be cleaner, safer, quieter, more energy secure and more bio-diverse. Low-carbon
growth is the genuine growth option; an attempt at high-carbon growth will self-destruct.
The study of past periods of economic/technological transformation has much to teachus here. Past industrial revolutions, e.g. steam and the railways, and much more recently the
information, communications and technology (ICT) revolution, which continues (Figure 1),
involved a transformation that saw two or more decades of strong innovation and growth, withinvestment flowing to those pioneer countries and businesses that showed leadership andembraced the transition (see, for example, Perez, 2002 and 2010). Such transformations
involve periods of ‘creative destruction’ (in the tradition of the economist Joseph Schumpeter),where new firms and ideas drive out the old, generating a dynamic period of innovation,
opportunity, employment and economic growth. Countries and states such as China, Korea,
Germany, the Scandinavian countries, and California are leading the transition with the size of
their low-carbon markets growing strongly. The costs of low-carbon technologies, such as
solar PV and off-shore wind power have declined rapidly over recent years and similar cost
reductions are expected in the future as their deployment accelerates.

183

Cleantech& Biotech (2009-)

Information& Telecom(1971-)

6TH WAVEINNOVATION

Oil, Automobiles& Mass Production(1910-1975)
Steel, Electricity& Heavy Engineering(1875-1920)
Steam & Railways(1830-1870)

Industrial(1770-1830)

5TH WAVE

4TH WAVE

3RD WAVE

2ND WAVE

1ST WAVE

1785

1845

1900

1950

1990

2020

Figure 1
Waves of Innovation
Source: DONG Energy (2009); diagram based on Perez (2002) drawing on report by
Merrill Lynch (2008) (schematic not precise quantitative vertical axis).

The transition will require strong action to reduce emissions across all countries and all
economic sectors. Energy efficiency will be central to the response, as will the introduction of
new low-carbon technologies and strong and determined action to slow and halt deforestation.
This will involve the implementation of transparent, long-term and credible public policies (toaddress the market failures) and public investments that create a positive environment for
innovation and change. They should take careful account of and be integrated with policies toprotect ecosystems and biodiversity.
As this transformation progresses the world must also be prepared to adapt to theclimate change to which we are already committed from past and future emissions. We haveto manage the unavoidable as well as avoiding the unmanageable. We are already outside thetemperature range of the Holocene period when our societies developed. Another 1-1.5ºC
which appears very likely will require major adaptation to changing weather and climate
patterns. There should be close intertwining with mitigation and development—indeed it is a
mistake to separate them excessively in terms of organization and implementation. Much of
irrigation and water management should combine mitigation, adaptation and development,
similarly buildings, city management, power and so on. The stronger the emissions reduction,
the less the necessary scale of adaptation but given what we have already done and are doingon emissions the scale of adaptation will have to be large.
We are already starting to see emissions reduction policies introduced in many
countries. But action will have to be stronger and more rapid, more coordinated, and extend
more broadly across the many relevant market failures if the level of investment and pace184

of change necessary to avoid dangerous climate change are to be achieved. Delay isdangerous and now is the time to accelerate. The world economy risks a prolonged slow
down as a consequence of the financial and economic crises of the last few years. Lowcarbon growth is the only sound basis for a sustainable recovery.

References
Bowen, A. & N. Ranger, 2009, Mitigating Climate Change Through Reductions in Greenhouse Gas Emissions: The
Science and Economics of Future Paths for Global Annual Emissions, Policy Brief, December, Centre for
Climate Change Economics and Policy, and Grantham Research Institute on Climate Change and theEnvironment. www2.lse.ac.uk/GranthamInstitute/publications/Policy/docs/PBMitigatingBowenRangerDec09.
pdf.
Bruntland, et al, 2012, Environment and Development Challenges: The Imperative to Act, Blue Planet Laureates,
Background Paper prepared for a submission to the Rio+20 UN conference in June 2012.
DONG Energy, 2009, Rethinking energy. Ascent Business Leadership Forum 2009, Presentation, 22 October.
Merrill Lynch, 2008, The sixth revolution: the coming of Cleantech clean technology, Industry Overview. Online
at: www.responsible-investor.com/images/uploads/resources/research/21228316156Merril_Lynch-_the_coming_of_clean_tech.pdf.
Perez, C., 2002, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages,
Edward Elgar, UK.
Perez, C., 2010, Full Globalisation as a Positive-Sum Game: Green Demand as an Answer to the Financial
Crisis, www2.lse.ac.uk/publicEvents/events/2010/20100518t1830vOT.aspx.
Royal Society, 2009, Geoengineering the climate: Science, governance and uncertainty, September.
Reekie, T. and W. Howard, 2012, Geoengineering, Occasional Paper Series, Office of Australia’s Chief
Scientist, Australian Government, Issue 1. http://www.chiefscientist.gov.au/wp-content/uploads/47019_
Chief-Scientist-_OccassionalPaperSeries_lores.pdf.
Stern, N., 2012, Climate Change and the New Industrial Revolution: What we risk and how we should cast theeconomics and ethics, Lecture 1, Lionel Robbins Memorial Lecture Series, London School of Economics
and Political Science, February 21. http://cep.lse.ac.uk/_new/events/event.asp?id=140.
The Economics of Ecosystems and Biodiversity: Ecological and Economic Foundations, 2011, (ed.) Pushpam
Kumar, Earthscan Volumes.
The Economics of Ecosystems and Biodiversity in National and International Policy Making, 2011, (ed.) Patrickten Brink, Earthscan Volumes.
The Economics of Ecosystems and Biodiversity in Business and Enterprise, 2011, (ed.) Joshua Bishop,
Earthscan Volumes.
The Economics of Ecosystems and Biodiversity in Local and Regional Policy Management, 2012, (eds) Heidi
Wittmer, Haripriya Gundimeda, Earthscan Volumes.
UNFCCC, 2011, Report of the Conference of the Parties on its sixteenth session, held in Cancun from 29
November to 10 December 2010, March. http://unfccc.int/documentation/decisions/items/3597.
php?such=j&volltext="cancun%20agreements"#beg.

Notes
1. I am very grateful to James Rydge for his guidance and support.
2. The Rio+20 conference of June 2012 rightly places strong emphasis on these bio-diversity issues. See The
Economics of Ecosystems and Biodiversity (TEEB) Volumes.
3. See, for example, Bowen and Ranger (2009).

185

Lecture

Creating a Global Agreement on Climate Change:
Responsibilities and Opportunities
Lord (Nicholas) Stern of Brentford
Introduction
Avoiding dangerous climate change and overcoming global poverty are the two defining
challenges of the 21st century. The global responses to these challenges must be carefully
designed, but if strong action is taken now, they will be both manageable and affordable.
Rich countries are largely responsible for the causes of the current climate crisis, but it
is developing countries that are being hit earliest and hardest by the consequences. Thus, richcountries must take strong action now and provide significant mitigation and adaptation
assistance to developing countries. Developing countries must also play a leading role indesigning and implementing a global deal. However, it is reasonable that developing countries
place strong conditions on the performance of rich countries both in cutting their emissions
drastically and in providing financial and technological support to developing country action;with such performance they could provide a “commitment to commit” to emissions reductions.
Rich country support can and should start now with substantial help with finance for the
climate change action plans which developing countries are now constructing.
I begin by briefly discussing the problem of climate change and what it implies fortargets to reduce emissions of greenhouse gases. This leads to a discussion and analysis of how
to achieve emissions targets and the likely costs involved. I conclude with the main elementsthat must be part of any global deal negotiated in Copenhagen in December 2009. If that
global deal is to be built and sustained it must be effective, efficient and equitable.
From People to Emissions
The rate of growth of economic activity in the industrialising parts of the world accelerated
dramatically from the mid-19th century onwards, while the form of that activity (the rise ofindustry and the relative decline of agriculture, for example) became much more hydrocarbonintensive. These three effects-growth, industrialisation and hydrocarbon use-combined toincrease greenhouse gas emissions. The second half of the 20th century saw a sharp increasein the rates of growth of emissions as the world recovered from the Great Depression and theSecond World War, and more countries industrialised.

186

Figure 1
From People to Emissions 1

Figure 2
From People to Emissions 2

187

From Emissions to Temperature
As a result of this hydrocarbon-intensive growth, the world has been emitting carbon dioxide
and other greenhouse gases at a faster rate each year than the planet can absorb, especiallyduring the rapid and energy-intensive growth of the last 60 years.
Concentrations of greenhouse gases in the atmosphere have grown from 285 parts per
million (ppm) in pre-industrial times to over 435 ppm of carbon-dioxide-equivalent (CO2e)
today, and we are adding at a rate of over 2.5 ppm per year (and if there is little or weak action
this is likely to accelerate to around 3 ppm per year or higher over the coming decades). As aresult, continuing with ‘business-as-usual’ (BAU) is likely to take us to over 750 ppm CO2e by
the end of the century.1
This level of concentration, even if there were no further increase, would result in asignificant probability, around 50% or more, of an eventual temperature increase of more than
5ºC compared with the pre-industrial era (our benchmark for temperature increases unlessotherwise stated). The planet last experienced such temperatures more than 30 million years
ago, long before the appearance of humans, 100 to 200,000 years ago. The most recent warm
period was around 3 million years ago when the world experienced temperatures 2ºC or 3ºC
higher than today. Humans have never experienced temperatures anywhere near a 5ºC increase.
From Temperature to Climate Change and Impacts on People
Thus ‘business-as-usual’ emissions of greenhouse gases would profoundly change the climateof the planet. Global sea level would rise by several metres and many low-lying coastal areas,such as much of Bangladesh, would be inundated. Many areas, probably including southern
Europe would turn into deserts. The physical and thus human geography (where we can live
and how we live our lives) would be transformed, leading to the migration of hundreds ofmillions of people, and intense competition for scarcer resources, such as water.2 This would
probably lead to intense and prolonged international and national conflicts. The stakes are
immense: we are essentially gambling the planet.
The Fourth Assessment Report published by the Intergovernmental Panel on Climate
Change (IPCC) in 2007 includes a review of recent research on the impacts of climate change
in Japan. Average temperature in Japan increased by about 1ºC in the 20th century and by 2ºC
to 3ºC in the largest cities. This is consistent with evidence of an increase in the number ofdays over 35ºC and a decrease in extremely low temperatures. There is also evidence ofincreased extreme rainfall events over the past 100 years, including serious flooding in 2004
which was the result of 10 typhoons. Migration of plants and animal species has also beenreported, the flowering date of the cherry has changed and alpine flora in Hokkaido havedecreased.
The IPCC also reports that heatwave conditions and extreme precipitation will increaseover Japan as atmospheric moisture content increases. Significant decreases in rice production
are also predicted; an atmosphere with carbon dioxide concentrations that are double those of
pre-industrial times (i.e. around 560ppm CO2e) could decrease rice yields in irrigated lowland
areas of central and southern Japan by up to 40%. Sea level rise will also have powerful
impacts on Japan. Over 4 million people could be at risk from a rise in sea level of 1 metre.

188

But remember that ‘business-as-usual’ will imply far higher concentrations than 550 or560ppm CO2e. The consequences for Japan both in terms of direct effects and migration of
550ppm CO2e would be very unpleasant; for 650ppm CO2e or more they are likely to bedevastating.

Figure 3
From Stocks to Temperature

What our Emissions Targets Should Be
In order to reduce the risk of climate change the world must act together and commit to targets
for emissions reductions. Most assessments of sensible risk management imply that we should
hold greenhouse gas concentrations at or below 500 ppm CO2e, and try to reduce them fromthere. Holding concentrations below this level would expose the planet to a probability of
global average temperature rising by 5ºC or more of around 2% or 3% compared with a huge
50% or more under ‘business-as-usual’.
Looking longer term, we should recognise that holding concentrations below 500ppm
CO2e and bringing down to 450 ppm or below, would still carry a serious risk of passing a
number of potential tipping points, like the destruction of rainforests and the release of
methane from thawing permafrost. It makes sense, therefore, to interpret ‘holding
concentrations below 500 ppm’ as eventually allowing a very long-term stabilisation markedly
below that level. The learning we have to do to hold levels below 500 ppm will tell us muchabout how to go further. Just where around 500 ppm CO2e, and then lower, we should aim is189

a matter of balancing the costs and the avoided risks. As the scientific evidence accumulates
the risks look ever larger; on the other hand the technology of emissions reductions is alreadymoving so quickly that costs of action and the benefits of new technologies may look evenmore attractive.
Annual global emissions of greenhouse gases were about 40 gigatonnes (Gt) CO2e in
1990; they are over 50 today. If the world is to hold concentrations below 500ppm CO2e andthen try to reduce from there, then we must ensure annual global emissions peak within thenext 10 years and reduce to half 1990 levels, or about 20 Gt CO2e at most, by 2050. As theglobal population will probably be around 9 billion in 2050, this would be equivalent toemissions of around 2 tonnes CO2e per capita. Given that there will be very few countries withactual emissions below this level there can be very few above.3
At the Italy summit (L’Aquila) in 2009, G8 leaders for the first time acknowledged theimportance of avoiding an increase in global average temperature of more than 2ºC comparedwith pre-industrial times. They also agreed a goal for developed countries of reducing theirannual emissions of greenhouse gases by at least 80% or more by 2050 compared with 1990.
This would take actual emissions in Europe and Japan to around 2 tonnes per capita, themaximum sustainable for any major country as argued above.
In addition to these distant objectives, explicit intermediate targets for 2020 and 2030
are necessary now for the rich countries and very soon for all countries. The immediacy of the
problem allows no delay, and businesses, markets and developing countries require strong
signals now and powerful examples of what is possible. The longer we delay, the more difficultand more costly it will be to stay below 500 ppm CO2e.

190

Figure 4
What our targets should be.

How to Achieve the Targets and Costs Involved
To be on a path to halve annual global emissions by 2050 from 1990, and allow eventual
stabilisation at 450 ppm CO2e, total world emissions in 2030 would have to be around 35 Gt
CO2e. Table 1 outlines six scenarios that demonstrate the extent of cuts necessary to achieve
this interim 2030 target.
The scenarios focus on five nations or regional groups: USA, EU/Japan, China, India
and the Rest of the World.4 I have put the EU and Japan together since they start with similar
emissions per capita and have similar emissions per unit of output. For all scenarios the overall
economies grow at 2.5% for the USA and EU/Japan and 7% for each of China and India. The
scenarios then look at different assumptions concerning emissions per unit of output. In thefirst block of 3 scenarios we have both the US and EU/Japan halving emissions per unit ofoutput and in the second block, dividing by 4.
Within the blocks, the scenarios vary according to different assumptions concerningemissions per unit of output in India and China: India and China both constant; India constantand China halving; India halving and China dividing by 4. The assumptions concerning India
relate to her much lower emissions per unit of output in 2010 (close to 2 tonnes versus around
6 for China) and to her lower standard of living (also her ‘starting’ emissions per unit of output
are substantially lower than China’s).
The table shows that only scenario 6 has any plausibility in terms of implications for the
4.3 billion people in the Rest of the World in 2030. Even that scenario would imply that the percapita emissions of the USA, EU/Japan and China would substantially exceed those of the 4.3
billion in the Rest of The World by 2030. Scenario 6 would require China to have peakemissions around 9 or 10 tonnes per capita with a peak around 2020 and India to peak ataround 4 or 5 tonnes per capita well before 2030. Rich countries would have to reduce
drastically starting now.
The architecture is clear: unless the USA, EU/Japan and China reduce emissions perunit of output by a factor of 4 it will not be possible to reach the goals that sensible risk
management requires. The alternatives would be to cut growth or be reckless with the climate.
Surely the right answer is to cut right back on emissions per unit of output. No major country,
least of all a rich one, can claim to have good reason to ‘contract out’. We must do this
together.

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Table 1: Emissions Scenarios Consistent with Global Emissions of 35 GtCO2e in 2030
Emissions in 2030
Scenario for emissions (em)change to 2030
Scenario 1: Overall growth:
India & China 7%, US, EU27
& Japan 2.5%.
em/output: India & China
constant; US, EU27 & Japanhalving.
Scenario 2: Overall growth:
India & China 7%, US, EU27
& Japan 2.5%.
em/output-India constant;
China, US, EU27 & Japanhalving.
Scenario 3: Overall growth:
India & China 7%, US, EU27
& Japan 2.5%.
em/output-India halving, China
decrease by factor of 4; US,
EU27 & Japan halving.

Scenario 4: Overall growth:
India & China 7%, US, EU27
& Japan 2.5%.
em/output: India & China
constant; US, EU27 & Japandecrease by factor of 4.
Scenario 5: Overall growth:
India & China 7%, US, EU27
& Japan 2.5%.
em/output-India constant,
China halving; US, EU27 &Japan decrease by factor of 4.
Scenario 6: Overall growth:
India & China 7%, US, EU27
& Japan 2.5%.
em/output-India halving;
China, US, EU27 &Japandecrease by factor of 4.

USA

China

India

Rest of the World

16.6

6.2

9.9

6.2

20.8

31.3

5.3

7.9

-3.8

-16.5

16.6

6.2

9.9

6.2

10.4

15.6

5.3

7.9

-0.2

-0.9

16.6

6.2

9.9

6.2

5.2

7.8

2.6

4.0

2.5

10.9

8.3

3.1

4.9

3.1

20.8

31.3

5.3

7.9

-2.4

-10.3

8.3

3.1

4.9

3.1

10.4

15.6

5.3

7.9

1.2

5.3

8.3

3.1

4.9

3.1

5.2

7.8

2.6

4.0

4.0

17.1

Assumptions:
China
India
USA
EU27 & Japan
Rest of the World
Source: UN 2008 World Population Prospects

192

EU 27 & JapantCO2e per Total tCO2e per Total tCO2e per Total tCO2e per Total tCO2e per Total
capita (GtCO2e) capita (GtCO2e) capita (GtCO2e) capita (GtCO2e) capita (GtCO2e)

Population (bn)
E2010
1.4
1.2
0.3
0.6
3.4

E2030
1.5
1.5
0.4
0.6
4.3

Emissions per
Total emissions
capita (CO2e)(GtCO2e)
E2010
E2010
6.0
8.1
1.7
2.0
25.1
7.5
12.1
7.5
7.8
26.8
Sources: Climate Analysis Indicators Tool (CAIT) &Global Carbon Budget Project.

There will of course, be other countries such as the USA, Canada, Australia which mustbring emissions down much more strongly than Japan or Europe-these 3 countries are currently
well over 20 tonnes CO2e per capita. In terms of technology and geography however Japan ismuch closer to Europe and the fact that others have still farther to go is no excuse for major
and technologically advanced countries like Europe and Japan, and Japan is the world’s second
largest economy, to fail to take a strong lead. If a poor country like China, with much lower
emissions per capita than Japan, is likely to have to cut emissions per unit of output by a factor
around 4 in 20 years, it is hard to argue that Japan cannot also cut emissions per unit of output
by a factor 4 and thus halve its per capita emissions to around 5 or 6 tonnes in the next two
decades.
We should not be rigid about the precise figures for annual emissions in 2030 or any
other particular year. There could be a little more emissions in one year and a little fewer inanother. But the limits imposed by the overall arithmetic for total emissions over the next few
decades are very real and give a very powerful indication of the scale of action required.
The key areas of actions to reduce emissions will be (i) energy efficiency (ii) lowcarbon technologies and (iii) halting deforestation. All will require investments which will
have to start strongly now across the world in order to achieve the annual emissions reductions
required by 2030. At the start of the process of stabilising atmospheric concentrations there isgreat scope for energy efficiency improvements. Energy efficiency varies across developed
countries. In 2005 Japan consumed 1.94 kWh of energy per dollar of GDP, expressed in(2000) USD. The EU consumed 2.29 kWh per dollar of GDP (there is significant variation
within the EU from 4.4 kWh in Bulgaria to 1.33 kWh in Ireland). In contrast, the US consumed
2.68 kWh of energy per dollar of GDP in 2005. While Japan is more energy efficient than the
US and some EU states, other major developed economies have achieved similar (Germany,
France) or better (UK) levels of energy efficiency.
Developing and deploying low-carbon technologies and activities will also be essential,
and Japan is in an excellent position to lead. Japan has shown great technological leadershipin the past; the Toyota Prius is a prominent and important example of ‘green’ innovation andleadership by a Japanese company. Another, less well-known, example is the development anddeployment of home-use fuel cells by Tokyo Gas Company and Panasonic Corporation. The
success of these technologies, especially hybrid drive technology, demonstrates the rewards
and opportunities available to those who lead.
The global emissions reductions necessary require there to be many more examples
like these. We need a rapid and widespread advance in the development and diffusion of awide range of technologies. Technology policy is essential to achieve this and is a powerfulstimulus. Japan has great experience in this area of policy.
As with all policy that creates the incentives to drive major change, it is important toavoid overconcentration on the many lobbyists and vested interests that will seek to delay and/or reduce the effectiveness of policy. The world needs Japan’s proven track record oftechnological innovation. Japan has a significant opportunity to lead the world again, just as
she did with the development of the semi-conductor during the 20th century.
Halting deforestation will require major advance in agricultural productivity and in193other parts of the economies of the regions where the trees stand. Governance and enforcementof laws on deforestation will require investment too. And peoples dependent on forests invarious ways must have a strong and direct stake in their protection. Policies must be
constructed by the countries where the trees stand but strong external support should be an
obligation on us all. Japan is playing its role in helping to reduce deforestation. For example,
it is an active participant in the Asia Forest Partnership (AFP) that aims to combat illegal
logging and reduce forest loss and degradation. We all gain from avoided deforestation. We
should be clear however that it will require substantial and sustained financial and othersupport.
The cost of stabilising at or below 450 ppm CO2e (and implementing these different
mitigation options), if the world acts now, is relatively small, compared to the cost of thedamages avoided. Both the bottom-up and the top-down studies in the Stern Review, Chapters
9 and 10 respectively, arrived at mitigation costs in similar ranges-around 1% (between -1%
and 3%) of world GDP for stabilisation below 550ppm CO2e. With ever clearer evidence thatrisks from unmanaged climate change are even worse than was assumed by the Stern Review,
it is clear that concentrations should be held below 500ppm CO2e and eventually brought
down to no higher than 450ppm CO2e. The annual costs of mitigation over the next few
decades might now be around 2% of world GDP.
Since the Stern Review was published there have been a number of new studies, bothbottom-up and top-down. Significant examples of the former are those from McKinsey(Enkvist et al., 2007) and the IEA (2007), both of which indicated mitigation costs consistent
with or lower than the Stern Review. Similar conclusions on costs of action are drawn in the
Fourth Assessment Review of the IPCC (AR4, IPCC 2007).
These costs will mostly take the form of new investments and will appear, for a while,in terms of higher costs for energy to industrial and domestic consumers. But there will bepotentially major savings from energy efficiency and the new low-carbon technologies, relative
to those displaced, are likely to have strong benefits (energy security, cleaner air, less noise,etc.) beyond the reductions in emissions. Stopping deforestation carries great co-benefits tooin terms of avoided soil erosion, silting and flooding and better watershed management,
maintaining patterns of rainfall, bio-diversity and so on.
Thus, we should not see the route to the low-carbon economy merely or mostly in termsof cost and burden-sharing. There are investments and opportunities. The transition to the lowcarbon economy over the next two or three decades is likely to be one of the most dynamic andexciting periods in economic history with strong discovery and growth. This will be wider anddeeper in terms of technology and geography than the arrival of the railway and electricity inindustrialising countries in the 19th and 20th centuries. And when low-carbon growth is achieved
it will be more energy secure, cleaner, quieter, safer, and more bio-diverse than its predecessor;
in other words much more attractive. High-carbon growth has no future: it will kill itself if wetry to continue-first on high hydrocarbon prices and second and more fundamentally, on thevery hostile physical environment it will create.

194

A Global Deal
The 15th Conference of the Parties (COP15) to the United Nations Framework Convention on
Climate Change, to be held in Copenhagen in December 2009, will be decisive in determining
the policies for the period beyond 2012 that succeed the Kyoto Protocol. The Copenhagenmeeting will be the most important international gathering since the Second World War. The
risks it must grapple with and the policies it agrees must be truly global. A delay in reachingan agreement would be dangerous. First, the relentless flow of emissions would continue toincrease the stock of greenhouse gases in the atmosphere, taking us into ever more difficult
territory and second, delay could undermine the market confidence that will be crucial for thenecessary investments in the low-carbon economy.
It is important that the agreement in Copenhagen be guided by clear principles basedon rigorous analytic foundations and a common understanding of the key challenges. The
following provides a brief outline of a possible global deal based on the preceding analysis.5 It
also draws on intensive public discussion during the work of the Stern Review in 2005 and2006 and on continual interaction internationally over the last three years.
Any global deal must be based on three basic principles:
Effectiveness-it must lead to cuts in emissions of greenhouse gases on the scale required toreduce the risks from climate change to acceptable levels;
Efficiency-it must be implemented in the most cost-effective way, with mitigation being
undertaken where and when it is cheapest; andEquity-it must take account of the fact that it is poor countries, with fewer resources andtechnologies, that are being hit earliest and hardest by the consequences of climate change,
while rich countries have a particular responsibility for the cause through their past emissions.
Effectiveness
There are several requirements for 'effective' action:• Global annual emissions to fall by at least 50% relative to 1990 levels by 2050, to at
most 20 GtCO2e;• Global average per capita emissions that will need to be around two tonnes per yearby 2050 (20 Gt divided by nine billion people);6• Agreement by developed countries to take on immediate and binding national targets,and to commit to reductions of at least 80% by 2050 compared with 1990;• Well before 2020, demonstration by developed countries that they can deliver credible
reductions, without threatening growth, and that they can design mechanisms andinstitutions to transfer funds and technologies to developing countries;• Subject to this and to strong support with finance and the sharing of technology, aformal expectation that developing countries would make a ‘commitment to commit’
to take on binding national targets of their own by 2020;

195

• All developing countries with or without immediate formal targets would require
climate change action plans;• A commitment by all countries, regardless of targets, to develop the institutions, data
and monitoring capabilities to assess progress in a transparent way, and to put in placepolicies to avoid the locking-in of high-carbon infrastructure.
Efficiency
Only sound, measured and coordinated policy, and timely international collaboration, candeliver strong and clean growth for all at reasonable cost. The essence of efficiency is to getemissions reduced where the cost is lowest. If any mass sector, technology or country is leftout, costs will rise. In principle, efficiency requires that the marginal cost of reducing emissions
is the same everywhere.
Backed by very strong targets for cuts in emissions by developed countries, carbon
prices can be maintained at levels which will provide incentives both for reductions at homeand purchases from abroad, and will guide action towards the lowest cost options. The cheapest
mitigation options often reside in developing countries, which should take advantage of carbon
markets from the outset. The current structure of the Clean Development Mechanism (CDM)
makes it difficult to create market flows to developing countries on the scale required. Movingfrom a project-based to a wholesale mechanism, perhaps based on sector-specific efficiency
targets and credible sector decarbonisation plans, would permit scaling-up in a number ofemissions and energy-intensive industries.
EquityAny global response to climate change must be equitable; responsibilities and costs should beallocated in ways that take account of wealth, ability, and historical responsibility.
However, we start in a very difficult and inequitable position. The numbers are stark.
Rich countries are responsible for around two-thirds of the existing stock of greenhouse gasesin the atmosphere and their emissions per capita are much higher than those of poor countries.
Therefore developing countries have a strong and understandable sense of injustice. They see
rich countries having first relied on fossil fuels for their development, and thus being largely
responsible for the existing stocks of greenhouse gases in the atmosphere, then tellingdeveloping countries to find another, and possibly more costly, route to development.
Given the inequities of the history of emissions, and the implications of climate change
for future development, rich countries must demonstrate the feasibility of low-carbon growthand set an example for others. However, they should do much more than this. There is a strong
imperative for the rich countries to provide more funds to developing countries, in addition to
current development commitments, to fund the extra costs created by climate change.
Delivering additional funds on an appropriate scale is crucial. The long-standing target
for development aid, set out in the Monterrey Consensus on Financing for Development in2002 and reaffirmed in December 2008 in the Doha Declaration on Financing for Development,
is for developed countries to provide at least 0.7% of GNP as Official Development Assistance(ODA). The EU gave itself, in June 2005, just before the G8 meeting at Gleneagles in the UK,196

until 2015 to reach the target.
Adaptation to a more hostile climate, however responsible we are in cutting emissions,will increase the burden on developing governments. Therefore the targets for support fromthe public budgets of rich countries are likely to be closer to 1.0% of GNP than 0.7% for the
coming two decades. With the private flows that could come with them and the growth andpoverty reduction they could help foster, these flows of public funds would constitute very
wise investments for the world as a whole, as well as the fulfilment of our duty as citizens of
the world.
Developing countries should challenge the rich countries to commit to very strong cutsin emissions. They could place the following conditions on rich countries and, on condition of
their fulfilment, the developing world should give a ‘commitment to commit’ to targets within
5-10 years:(i) strong performance by the rich countries over the next decade towards meeting targets for
2020, 2025 and 2030, which are tough and fully consistent with a path to reductions inemissions of at least 80% by 2050 relative to 1990;(ii) financial support through the markets and elsewhere for action in the developing world,and strong support in the battle against deforestation; by the 2020s the necessary flows to
support reductions in emissions by developing countries are likely to be in the region of$100bn per annum.7(iii) rich countries to develop new technologies for low-carbon economic growth, whichshould be shared with developing countries; and(iv) substantial assistance in adaptation to those impacts of climate change which are now
inevitable over the next few decades; by the 2020s the necessary additional support (over andabove existing ODA countries) is likely to be in the region of $100bn per annum.8
This would be a framework where the developing world would explain to the rich world
what is necessary and place the conditionality and performance requirements on them.
Conclusion
If the world allows climate responsibility on the one hand, and growth, development and thefight against world poverty, on the other, to become set against each other, the argument is lostfrom the start. The world has both the technology and the economic understanding to move
forward strongly on both simultaneously. In other words the two defining challenges of ourcentury must be tackled together. If we fail to manage climate change we will derail
development and if we try to manage climate change by blocking development we will fail tobuild the global coalition necessary to reduce emissions.
Japan is in a strong position be in the vanguard on climate change. Japan has an enviable
track record of leadership in technological innovation and the world looks to Japan to again
demonstrate this leadership. Strong and effective climate change policy that sets a clear andinstructive example for the rest of the world is crucial. If not the world will ask “if a country
like Japan cannot do this, then how can we?” Japan is pivotal.
At Copenhagen in December 2009, leadership must come from the top; that means
heads of government. The problems of climate change are too wide to be confined only to one

197

or two individual government departments, ministries or negotiators. It is vital that united anddecisive leadership is displayed by heads of government. And if we learn to collaborate on thenecessary scale in this fundamental area we will surely do much better in the many otherimportant areas of international policy.
Rich countries must recognise their responsibilities, especially to developing countries
and take strong action now. Developing countries should place conditions on rich countries,
and on condition of their fulfilment, ‘commit to commit’ to substantial cuts in emissions of
their own. The arithmetic is crystal clear, only a comprehensive agreement that involves bothrich and developing countries can achieve the cuts in emissions necessary to avoid dangerous
climate change.
Action is not led only from the top: it will be the individual understanding of citizens,
communities, companies and NGOs that will drive forward this debate. The understanding
and demands of members of the public are the most fundamental drivers of political change.
It will be this voice that will carry us through to a more responsible future.

Notes
1. For references the reader may wish to consult my recent book “A Blueprint for a Safer Planet”, publishedby Bodley Head in April 2009 (title in the USA is “A Global Deal” and published by Public Affairs), theStern Review on “The Economics of Climate Change” published by Cambridge University Press in January
2007, or the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).
2. Note that the effects of climate change operate mostly through water in some shape or form: storms, floods,
drought, sea-level rise.
3. The base of 1990 for emissions reductions is not always stated-but it should be. The 20 Gt CO2e upper limit
in 2050 already involves substantial risk and should not be revised upwards.
4. EU refers to the 27 member countries of the European Union.
5. The reader may wish to consult my recent book “A Blueprint for a Safer Planet”, for a detailed description.
6. We should note that this applies to actual emissions and there are strong arguments for rich countries to not
only limit their actual emissions to these levels but also to fund emissions reductions elsewhere.
7. See, for example, “A Blueprint for a Safer Planet”, Stern, 2009.
8. See, for example, the analysis of the Human Development Report 2007-08 which indicated costs around$85bn p.a. by 2015.

198

Major Publications
Lord (Nicholas) Stern of Brentford
Books
An Appraisal of Tea Production on Smallholdings in Kenya, published by the OECD, Paris, January 1972.
Theories of Economic Growth, edited with J.A. Mirrlees. Proceedings of a conference of the International
Economic Association in Jerusalem, April 1970), Macmillan, 1973.
Crime, The Police and Criminal Statistics (with R.A. Carr-Hill), Academic Press, May 1979.
Palanpur: The Economy of an Indian Village (with C.J. Bliss), Oxford University Press, 1982.
The Theory of Taxation for Developing Countries (edited with D.M.G. Newbery), (Chapter 1, with D. Newbery),(Chapter 2), (Chapter 3), (Chapter 5 with D. Newbery), (Chapter 11, with E. Ahmad), (Chapter 25, with D.
Newbery), World Bank and Oxford University Press, 1987.
The Theory and Practice of Tax Reform in Developing Countries (with E. Ahmad), Cambridge University Press,
1991.
Development Experiences in China and India: Reforms and Modernisation (edited with S.P. Gupta, A. Hussain andW. Byrd), Allied Publishers, Delhi, 1991.
Le Rôle de l'Etat dans le Développement Économique, Editions Payot, Lausanne, 1992. The first annual Conférence
Walras-Pareto delivered at the University of Lausanne, 1-3 May 1991.
Tax Policy and Planning in Developing Countries (with Amaresh Bagchi), Oxford University Press, Delhi, 1991.
Development Experiences in China and India (ed with S.P.Gupta, A,Hussain and W.Byrd), Allied, Delhi, 1991.
Editor of the Transition Report (the EBRD's main annual publication) and the Transition Report Update from 19941999.
Growth Theories Old and New, and the Role of Agriculture in Economic Development, FAO, Rome 1996.
Development Strategy and Management of the Market Economy, Volume I, (with Malinvaud et al.), 1997.
Economic Development in Palanpur over Five Decades (with Peter Lanjouw), Oxford University Press, 1998.
A Strategy for Development, The World Bank, 2002.
A Case for Aid (with Ian Goldin and Halsey Rogers), the World Bank 2002.
State-level Reforms in India, (ed. with Stephen Howes and Ashok Lahiri), Macmillan, Delhi, 2003.
Growth and Empowerment, Making Development Happen, (with Jean-Jacques Dethier and F. Halsey Rogers),
MIT Press, 2005.
Our Common Interest, Report of the Commission for Africa, (as Director of Policy and Research) Commission for
Africa, 2005.
Economics of Climate Change, Cambridge University Press, 2007.
A Blueprint for a Safer Planet: how to manage climate change and create a new era of progress and prosperity,
London: The Bodley Head, 2009 (Also printed as A Global Deal: climate change and the creation of a new eraof progress and prosperity, New York: Public Affairs, 2009.
Articles/Book Chapters
On Fairly Good Plans (with J.A. Mirrlees), Journal of Economic Theory, 4, 268-288, April 1972.
Optimum Development in a Dual Economy, Review of Economic Studies, 39, 171-184, April 1972.
The Optimal Size of Market Areas, Journal of Economic Theory, 2, 4, 154-173, April 1972.
The Optimal Structure of Market Areas (with B. Bollobas), Journal of Economic Theory, 4, 174-179, April 1972.
Experience With the Use of the Little/Mirrlees Method for an Appraisal of Smallholder Tea in Kenya, Bulletin of
the Oxford University Institute of Economics and Statistics, 34, 93-123, April 1972.
Delinquent Generations Revisited (with R.A. Carr-Hill and K. Hope), The European Journal of Methodology:
Quality and Quantity, 2, 327-352, 1972.
An Econometric Model of the Supply and Control of Recorded Offences in England and Wales (with R.A. CarrHill), Journal of Public Economics, 2, 289-318, 1973.
Homogeneous Utility Functions and Equality in 'The Optimum Town': A Note, The Swedish Journal of Economics,
2, 1973.
Pigou, Taxation and Public Goods (with A.B. Atkinson), Review of Economic Studies, 41, 119-128, January 1974.
Determinants of Shadow Prices in Open Dual Economies (with A.K. Dixit), Oxford Economic Papers, 26, 42-53,

199

March 1974.
Professor Bauer on Development: A Review Article, Journal of Development Economics, 1, 191-211, 1974.
Optimum Savings with Economies of Scale (with A.K. Dixit and J.A. Mirrlees), Review of Economic Studies, 42,
303-325, July 1974.
Some Aspects of the Theory of Economic Policy, paper delivered to a conference of the Institute of Mathematics
and its Applications, June 1974, published in the Journal of the I.M.A. in 1975.
On the Specification of Models of Optimum Income Taxation, presented to conference of International Seminar in
Public Economics in Paris in January 1975 and published in the Journal of Public Economics, 6, 123-162, July/
August 1985.
Welfare Weights and the Elasticity of the Marginal Valuation of Income. Published as Chapter 8 in Proceedings of
the AUTE Edinburgh Meeting of April 1976, M. Artis and R. Nobay (eds.), Basil Blackwell, 1977.
Theory and Estimation in Models of Crime and its Social Control and their Relations to Concepts of Social Output(with R.A. Carr-Hill), presented to the International Economic Association Conference on The Economics of
the Public Services, in Turin, April 1974 and published (Chapter 6) by MacMillan for the IEA, Feldstein andInman (eds.), 1976.
Taxation and Labour Supply—A Partial Survey, presented to the Institute for Fiscal Studies Conference on Taxation
and Incentives, January 1976 and published by the IFS, 1976.
Productivity, Wages and Nutrition: Part I Theory, (with C.J. Bliss), Journal of Development Economics, 5, 331-362,
December 1978.
Productivity, Wages and Nutrition: Part II Some Observations (with C.J. Bliss), Journal of Development Economics,
5, 363-398, December 1978.
On the Economic Theory of Policy Towards Crime, Chapter 4 in J.M. Heineke (ed.), Economic Models of Criminal
Behaviour, North-Holland, 1978.
A Note on the Allocation of Time (with A.B. Atkinson), Economics Letters, 3, 119-123, 1979.
On the Switch from Direct to Indirect Taxation (with A.B. Atkinson and J. Gomulka), Journal of Public Economics,
14(2), 195-224, 1980.
Productivity, Wages and Nutrition in the Context of Less Developed Countries (with C.J. Bliss), Study in Population
and Agricultural Development, No.7, FAO, Rome 1978. French translation in Cahiers du Seminaire d'Econometrie, publiés sous la direction de Edmond Malinvaud, 21, 101-122, 1980.
On Labour Supply and Commodity Demands (with A.B. Atkinson in conjunction with J. Gomulka), Chapter 10 in
Essays in the Theory and Measurement of Consumer Behaviour, A.S. Deaton (ed.), Cambridge University
Press, 1981.
Optimum Taxation with Errors in Administration, Journal of Public Economics, 2, 181-211, March 1982.
Oligopoly and Welfare (with A.K. Dixit), European Economic Review, 19(1), 123-143, 1982.
Taxation for Efficiency, in Microeconomic Efficiency and Macroeconomic Performance, D. Shepherd, J. Turk and
A. Silberston (eds.), Philip Allan, 1983.
Crime and the Dole Queue (with R.A. Carr-Hill), Police, pp. 28-32, April 1983.
Unemployment and Crime: A Comment on ‘The Social Consequences of High Unemployment’ (with R.A. CarrHill), Journal of Social Policy, 12(3), 387-394, 1983.
The Structure of Personal Income Taxation and Income Support (with A.B. Atkinson and M.A. King), SSRC
Programme on Taxation, Incentives and the Distribution of Income, Discussion Paper No.44, published as
evidence in the third special report of the House of Commons Treasury and Civil Service Committee HC(1982-83), 386, June 1983.
Tax Reform: Income Distribution, Government Revenue and Planning, the V.K. Ramaswami Memorial Lecturedelivered in Delhi in March 1983, published in the Indian Economic Review, 18(1), 17-33, 1983.
Optimum Taxation and Tax Policy, IMF Staff Papers, 31(2), 339-378, June 1984.
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The Poverty Trap (with A.B. Atkinson), Economic Review, 12(5), May 1985.
A Note on Commodity Taxation: The Choice of Variable and the Slutsky, Hessian and Antonelli Matrices (SHAM),
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Optimally Uniform Commodity Taxes, Taste Differences and Lump-sum Grants (with A.S. Deaton), Economics
Letters, 20, 263-266, March 1986.
The Effects of Taxation, Price Control and Government Contracts in Oligopoly and Monopolistic Competi-tion,
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The Theory of Cost-Benefit Analysis (with J. Drèze), in Handbook of Public Economics, A. Auerbach and
M. Feldstein (eds.), North-Holland 1987.
The Demand for Wheat under Non-Linear Pricing in Pakistan (with E. Ahmad and H-M Leung), Journal of
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Entry on Peasant Economy, in The New Palgrave: A Dictionary of Economics, J. Eatwell, M. Milgate and
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Alcohol: Demand and Taxation under Monopoly and Oligopoly in South India in the 1970s (with S. Musgrave),
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Comparison of the FES and New Earnings Survey 1971-77 (with A.B. Atkinson and J. Micklewright), in Tax
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A Complete Set of Shadow Prices for Pakistan: Illustrations for 1975-76 (with E. Ahmad and D. Coady), Pakistan
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Demand Response in Pakistan: A Modification of the Linear Expenditure System for 1976 with (E. Ahmad and
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The Economics of Development: A Survey, Economic Journal, 99, 597-685, September 1989. Also published in
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Taxation for Developing Countries (with E. Ahmad), in Handbook of Development Economics, Volume II, H.B.
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Comment on 'Social Sector Pricing Policy Revisited' by E. Jimenez, Proceedings of the World Bank Conference on
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World Bank Research Observer), World Bank, Washington, D.C., 1990.
Uniformity versus Selectivity in Indirect Taxation, Economics and Politics, 2(1), 83-108, March 1990.
Tax Reform and Shadow Prices for Pakistan (with E. Ahmad), Oxford Economic Papers, 42, 135-159, 1990. Also
published in Taxation, Private Information and Capital, P.J.N. Sinclair and M.D.E. Slater (eds.), Oxford:
Clarendon Press, 1991.
Principles of Taxation for Developing Countries (with E. Ahmad) in Public Policy and Economic Development:
Essays in Honour of Ian Little, M.FG. Scott and D. Lal (eds.), Oxford University Press, 1990.
Comments for the Closing Panel presented at the World Bank Conference on Tax Policy in Developing Countries,
Washington, DC, March 1990, in Tax Policy in Developing Countries, Javed Khalilzadah-Shirazi and Anwar
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How Should Ignorance of Response to Incentives Affect Tax Rates?, Economics Letters, 32(4), 335-338, April
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The Employment of Married Women in the UK; 1970-1983 (with J. Gomulka), Economica, 57, 171-199, May
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Policy Reform, Shadow Prices and Market Prices (with J. Drèze), Journal of Public Economics, 42, 1-46, June
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Spending on Alcohol—Evidence from the Family Expenditure Survey 1970-1983 (with A.B. Atkinson and J.
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Roundtable Discussion on Development Strategies: The Roles of the State and the Private Sector, Proceedings ofthe World Bank Annual Conference on Development Economics 1990, pp.425-429 (Supplement to the The
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Poverty in Palanpur (with P. Lanjouw), The World Bank Economic Review, 5, 23-33, January 1991.
The Determinants of Growth, Economic Journal, 101, 404, January 1991. Also published in The Future of
Economics, John D. Hey (ed.), Basil Blackwell, 1992.
Prices, Taxes and Planning, Ricerche Economiche, 44, 303-320, April 1991.
Effective Demand, Enterprise Reforms and Public Finance in China (with A. Hussain), Economic Policy, 12, 141186, April 1991.
Public Policy and the Economics of Development (The Alfred Marshall Lecture, 31 August 1990, Lisbon),
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On the Recent Increase in Death Rates in China (with A. Hussain), in Development Experience in India and China,
S.P. Gupta, N. Stern, A. Hussain and W. Byrd (eds.), Allied Publishers, New Delhi 1991.
Project Appraisal and Development Policy, Rivista di Diritto Finanziario e Scienza Delle Finanze, 645-656,
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From the Static to the Dynamic: Some Problems in the Theory of Taxation, Journal of Public Economics (Special
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The Role of the State, Ownership and Taxation in Transitional Economies (with Athar Hussain), Economics ofTransition 1(1), 61-87, 1993.
Comment on 'James Meade and Benevolence' by Frank Hahn, pp.264-268 in A.B. Atkinson (ed), Alternatives to
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Taxation and Development (with Robin Burgess), Journal of Economic Literature, 31, 762-830, June, 1993.
Tax Reform in India (with Robin Burgess), Indian Journal of Applied Economics, 3, pp.1-81, 1994.
The Reform of Indirect Taxes in India (with Robin Burgess and Stephen Howes), pp.113-166 in Robert Cassen andVijay Joshi (eds), India: The Future of Economic Reform, Delhi: Oxford University Press, 1995.
Value-Added Tax Options for India (with Robin Burgess and Stephen Howes), International Tax and Public
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Transition Report, in an annual series by the Chief Economist's Office, EBRD, November 1994, 1995, 1996, 1997,
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Tax Reform and Stabilisation in Sri Lanka in Mario I. Blejer and Teresa Ter-Minassian (eds), Macroeconomic
Dimensions of Public Finance: Essays in honour of Vito Tanzi, pp.413-439, London: Routledge, 1997.
The Transition in Eastern Europe and the Former Soviet Union: Some Strategic Lessons from the Experience of 25
Countries Over Six Years in Salvatore Zecchini (ed) Lessons from the Economic Transition: Central andEastern Europe in the 1990s, pp.35-57, Kluwer Academic Publishers for OECD, Paris, 1997.
Enterprise Performance and Macroeconomic Control (with W. Buiter and R. Lago), Banco Nazionale del Lavoro
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Macroeconomic Policy and the Role of the State in a Changing World in Malinvaud, E. et al (eds) Development
Strategy and Management of the Market Economy Volume I, pp.143-174, Oxford: Clarendon Press (for theUnited Nations, New York), 1997.
A Framework for a Development Strategy in a Market Economy (with J.E. Stiglitz), in Malinvaud, E. et al (eds)
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The World Bank as 'Intellectual Actor' (with Francisco Ferreira), in D. Kapur, J.P. Lewis and R. Webb (eds) The
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Promoting an Effective Market Economy in a Changing World (with Willem Buiter and Ricardo Lago), in Szekely,
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Capital Flows to Eastern Europe and the Former Soviet Union (with Hans Peter Lankes), in Feldstein, M. (ed),International Capital Flows, pp.57-97, Chicago and London: University of Chicago Press, 1999.
Broadening the Agenda for Poverty Reduction: Opportunity, Empowerment, Security (with Nora Lustig), Finance& Development, Vol. 37, Issue 4, December 2000.
Cinquante ans de développement économique: bilan et experiences (with P. Collier and D. Dollar), Revue
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Towards a Dynamic Public Economics, Journal of Public Economics, September 2001.
Opportunities off the Farm as a Springboard out of Rural Poverty: Five Decades of Development in Indian Village,(with P. Lanjouw) in ed G.Fields and G.Pfeffermann. Pathways Out of Poverty: Private Firms and Economic
Mobility in Developing Countries, Kluwer,Boston, 2003.
Public Policy for Growth and Poverty Reduction, The Economic Quarterly, Vol. 50, No. 1, March 2003.
Growth and Poverty Reduction, CESifo Economic Studies, Vol. 49, No. 1/2003.
Investment Climate: Lessons and Challenges, Distinguished Lecture Series 19, The Egyptian Center for Economic
Studies, March 2003.
The Future of the IMF and World Bank: Panel Discussion, The American Economic Review, May 2003.
Agricultural Changes and Inequality in Palanpur 1957-1984 (with P. Lanjouw), K. Hoff, A. Braverman and J. E.
Stiglitz (Eds), The Economics of Rural Organisation: Theory, practice, and policy, Oxford; New York; Toronto
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Policies for Pro-Poor Growth in India (with M. Ferro and D. Rosenblatt), in ed K.Basu, India’s Emerging Economy,
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Evaluating the poverty impact on economic policies: some analytical challenges (with F.Bourguignon and L.
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Routledge, for IMF, Abingdon and New York, 2006.
Making Development work in Africa: Our Common Interest Economie publique, No 17. May 2006.
Supporting and financing Africa’s resurgence, Journal of African Economics, Journal pf African Economies,
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Reflections on the Stern Review: a robust case for strong action to reduce the risks of climate change (with Simon
Dietz, Chris Hope and Dimitri Zenghelis), World Economics, Vol.8, No.1 (January-March) 2007.
Right for the Right Reasons: a final rejoinder on the Stern Review (with Dennis Anderson, Simon Dietz, Chris
Hope and Demitri Zenghelis), World Economics, Vol.8, No.2 (April-June) 2007.
A new global deal on climate change (with Cameron Hepburn), Oxford Review of Economic Policy, 24 (2), 259270, 2008.
Climate Change, Ethics and the Economics of the Global Deal, Royal Economic Society Annual Lectures(Manchester, 29 November 2007/London, 30 November 2007).
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Climate Change Innovation and Jobs (with Samuel Fankhauser and Friedel Sehlleier), Climate Policy Vol. 8.
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Why economic analysis supports strong action on climate change: a response to the Stern Review's critics (withSimon Dietz), Review of Environmental Economics and Policy, Vol. 2. Issue 1. pp.94-113, 2008.
Economics, ethics and climate change (with Simon Dietz and Cameron Hepburn), in Kaushik Basu and Ravi
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Changing Economics in Felix Dodds, Andrew Higham and Richard Sherman (eds.) Climate Change and Energy
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Roundtable Discussion: Economics and climate change: where do we stand and where do we go from here?
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Environmental Policy and the Economic Downturn, (with Alex Bowen) Oxford Review of Economic Policy, 26(2): 137-163, 2010.
The Economics of Climate Change, in Stephen M. Gardiner, Simon Caney, Dale Jamieson, and Henry Shue (eds.)
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Imperfections In The Economics Of Public Policy, Imperfections In Markets, And Climate Change, Presidential
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Gérer les changements climatiques: climat, croissance, développement et équité, Leçons Inaugurales du Collège
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Climate change and India (with Ruth Kattumuri and Nandan Nilekani), in Shankar Acharya, Rakesh Mohan (eds.)
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Commentary (with Paul Johnson) on Environmental Taxes by Don Fullerton, Andrew Leicester, and Stephen
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Paul Johnson, Gareth Myles, and James Poterba (eds) Dimensions of Tax Design: The Mirrlees Review, New
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Uncertainty in Science and its Role in Climate Policy (with Leonard Smith), Philosophical Transactions of theRoyal Society A, 369, 1-24, 2011.
Sustainable healthcare needs interdisciplinary research: Interdisciplinary collaboration is needed to ensure wedevelop future proof models of care (with Anita Charlesworth, Alastair Gray, David Pencheon), British Medical
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The New Energy-industrial Revolution and International Agreement on Climate Change (with James Rydge),
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Raising Consumption, Maintaining Growth and Reducing Emissions: The objectives and challenges of China's
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