2006 report on the economics of climate change
The Stern Review on the Economics of Climate Change is a 700-page report released for the Government of the United Kingdom on 30 October 2006 by economist Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE) and also chair of the Centre for Climate Change Economics and Policy (CCCEP) at Leeds University and LSE. The report discusses the effect of global warming on the world economy. Although not the first economic report on climate change, it is significant as the largest and most widely known and discussed report of its kind.
The Review states that climate change is the greatest and widest-ranging market failure ever seen, presenting a unique challenge for economics. The Review provides prescriptions including environmental taxes to minimise the economic and social disruptions. The Stern Review's main conclusion is that the benefits of strong, early action on climate change far outweigh the costs of not acting. The Review points to the potential impacts of climate change on water resources, food production, health, and the environment. According to the Review, without action, the overall costs of climate change will be equivalent to losing at least 5% of global gross domestic product (GDP) each year, now and forever. Including a wider range of risks and impacts could increase this to 20% of GDP or more, also indefinitely. Stern believes that 5–6 degrees of temperature increase is "a real possibility".
The Review proposes that one per cent of global GDP "per annum" is required to be invested to avoid the worst effects of climate change. In June 2008, Stern increased the estimate for the annual cost of achieving stabilisation between 500 and 550 ppm CO2e to 2% of GDP to account for faster than expected climate change.
There has been a mixed reaction to the Stern Review from economists. Several economists have been critical of the Review, for example, a paper by Byatt "et al." (2006) describes the Review as "deeply flawed". 
Some economists (such as Brad DeLong and John Quiggin) have supported the Review. Others have criticised aspects of Review's analysis, but argued that some of its conclusions might still be justified based on other grounds, e.g., see papers by Martin Weitzman (2007) and Dieter Helm (2008).
Summary of the Review's main conclusions.
The executive summary states:
Background.
On 19 July 2005 the Chancellor of the Exchequer, Gordon Brown announced that he had asked Sir Nicholas Stern to lead a major review of the economics of climate change, to understand more comprehensively the nature of the economic challenges and how they can be met, in the UK and globally. The Stern Review was prepared by a team of economists at HM Treasury; independent academics were involved as consultants only. The scientific content of the Review was reviewed by experts from the Walker Institute.
The Stern review was not released for regular peer-review, since the UK Government doesn't undertake peer review on commissioned reviews. Papers were published and presentations held, that outlined the approach in the months preceding the release.
Positive critical response.
The Stern Review attracted positive attention from several sectors. Pia Hansen, a European Commission Spokeswoman, said doing nothing is not an option, "we must act now". Simon Retallack of the UK think tank IPPR said "This [Review] removes the last refuge of the 'do-nothing' approach on climate change, particularly in the US." Tom Delay of The Carbon Trust said "The Review offers a huge business opportunity." Richard Lambert, Director General of the Confederation of British Industry, said that a global system of carbon trading is "urgently needed". Charlie Kronick of Greenpeace said "Now the government must act and, among other things, invest in efficient decentralised power stations and tackle the growth of aviation."
Asset managers F&amp;C look to the business opportunities and say "this is an unprecedented opportunity to generate real value for our clients". Brendan Barber, General Secretary of the Trades Union Congress, was optimistic about the opportunities for industry to meet demands created by investment in technology to combat climate change. The Prince of Wales' Corporate Leaders Group on Climate Change, formed by 14 of UK's leading companies shared this hope. Chairman of Shell UK, James Smith, expressed the hope of the group that business and Government would discuss how Britain could obtain "first mover advantage" in what he described as "massive new global market".
On 1 November 2006, Australian Prime Minister John Howard responded by announcing that A$60 million would be allotted to projects to help cut greenhouse gas emissions while reiterating that Australia would not ratify the Kyoto Protocol. Much of this funding was directed at the non-renewable coal industry.
British Prime Minister, Tony Blair, stated that the Review demonstrated that scientific evidence of global warming was "overwhelming" and its consequences "disastrous" if the world failed to act. The UK Treasury, which commissioned the report, simultaneously published a document of favourable comments on the Review. Those quoted include:
Several academic economists are also quoted praising the Review (see "Response of economists").
Negative critical response.
The Stern Review has received various critical responses. Some economists have argued that the Review overestimates the present value of the costs of climate change, and underestimates the costs of emission reduction. Other critics have argued that the economic cost of the proposals put forward by Stern would be severe, or that the scientific consensus view on global warming, on which Stern relied, is incorrect. By contrast, some argue that the Review emission reduction targets are too weak, and that the climate change damage estimates in the Review are too small.
General criticisms.
In an article in the "Daily Telegraph" (2006), Ruth Lea, Director of the Centre for Policy Studies, questions the scientific consensus on climate change on which the Stern Review is based. She says that "authorities on climate science say that the climate system is far too complex for modest reductions in one of the thousands of factors involved in climate change (i.e., carbon emissions) to have a predictable effect in magnitude, or even direction." Lea questions the long-term economic projections made in the Review, commenting that economic forecasts for just two or three years ahead are usually wrong. Lea goes on to describe the problem of drawing conclusions from combining scientific and economic models as "monumentally complex", and doubts whether the international co-operation on climate change, as argued for in the Review, is really possible. In conclusion, Lea says that the real motive behind the Review is to justify increased tax on fuels.
Yohe and Tol (2007) described Lea's article as a climate sceptics "scattershot approach" aiming to confuse the public by questioning the causal role of CO2, by emphasising the complexity of making economic predictions and by attributing a motive for Stern's conclusions.
Miles Templeman, Director-General of the Institute of Directors, said: "Without countries like the US, China or India, making decisive commitments, UK competitiveness will undoubtedly suffer if we act alone. This would be bad for business, bad for the economy and ultimately bad for our climate."
Prof. Bill McGuire of Benfield UCL Hazard Research Centre said that Stern may have greatly underestimated the effects of global warming. David Brown and Leo Peskett of the Overseas Development Institute, a UK think-tank on international development, argued that the key proposals in relation to how to use forests to tackle climate change may prove difficult to implement: ;templatestyles src="Template:Blockquote/styles.css" / ;Radical ideas are needed not only at the level of understandings but also of forward strategies. The Stern Review is much stronger on the former than the latter, and leaves a lot of questions unanswered on implementation, particularly the downstream practicalities of bringing avoided deforestation into climate mitigation efforts.
Soon after publication of the Stern Review, former Chancellor of the Exchequer Nigel Lawson gave a lecture at the Centre for Policy Studies, briefly criticising the Review and warning of what he called "eco-fundamentalism". In 2008, Lawson gave evidence before the House of Commons Treasury Select committee, criticising the Review.
Environmental writer Bjørn Lomborg criticised the Stern Review in "OpinionJournal":
 ;templatestyles src="Template:Blockquote/styles.css" / ;Mr. Stern's core argument that the price of inaction would be extraordinary and the cost of action modest [...] falls apart when one actually reads the 700-page tome. Despite using many good references, the Stern Review on the Economics of Climate Change is selective and its conclusion flawed. Its fear-mongering arguments have been sensationalized, which is ultimately only likely to make the world worse off.
"Reason magazine's" science correspondent Ronald Bailey describes the "destructive character" of the Stern Review's policy proposals, saying that "Surely it is reasonable to argue that if one wants to help future generations deal with climate change, the best policies would be those that encouraged economic growth. This would endow future generations with the wealth and superior technologies that could be used to handle whatever comes at them including climate change. [...] So hurrying the process of switching from carbon-based fuels along by boosting energy costs means that humanity will have to delay buying other good things such as clean water, better sanitation, more and better food, and more education."
Commenting on the Review's suggested increases in environmental tax, the British Chambers of Commerce have pointed to the dangers to business of additional taxation.
Jerry Taylor of the Cato Institute, a United States libertarian think-tank, criticised Stern's conclusion, taking a calculation by himself: ;templatestyles src="Template:Blockquote/styles.css" / ;Stern's investment advice makes sense only if you think that warming will hammer GDP by 10% a year. You don't gain much at all from emission cuts, however, if you think GDP will only drop by 5% a year if we do nothing. And if you think warming will only cost the global economy 2% of GDP every year, [...] then Stern's investment advice is [sheer] lunacy.
In the BBC radio programme "The Investigation," a number of economists and scientists argued that Stern assumptions in the Review are far more pessimistic than those made by most experts in the field, and that the Review's conclusions are at odds with the mainstream view (Cox and Vadon, 2007).
In his paper on the Jevons' Paradox, which states that improvements in energy-efficiency of technologies can potentially increase greenhouse gas emission, Steve Sorrel concludes with "A prerequisite for all the above is a recognition that rebound effects matter and need to be taken seriously. Something is surely amiss when such in-depth and comprehensive studies as the Stern(2007) review overlook this topic altogether." This criticism was rejected by the authors. They noted that by recommending a comprehensive global carbon price (see Summary above) the Stern Review proposed the most powerful mechanism for staunching the "rebound effect". A carbon price imposes a wedge between the supply price received by producers and demand price paid by consumers thereby prompting substitution away from carbon-intensive activities. This insures that the substitution effect offsets the income effect.
In contrast to those who argued that the Stern Review was too pessimistic or 'alarmist', others argued that it did not go far enough. John Bellamy Foster, Brett Clark and Richard York in "The Ecological Rift" (2010) give considerable attention to the Stern Review, noting that the targets of 550 ppm imply a global temperature increase of at least 3 °C "well beyond what climate science consider dangerous, and which would bring the earth's average global temperature to a height last seen in the middle Pliocene around 3 million years ago" (p. 154). They posit that the basis for such high targets is "economics, pure and simple" (p. 155), that is, stronger emissions cuts were seen by the Stern Review authors as "prohibitive, destabilizing capitalism itself" (p. 155). "All of this signals that any reduction in CO2 equivalent emissions beyond around 1 per cent per year would make it virtually impossible to maintain strong economic growth—the bottom line of the capitalism economy. Consequently, in order to keep the treadmill of accumulation going the world needs to risk environmental Armageddon" (p. 156).
Stern report misused climate change study.
According to the "Sunday Times" article "Climate change study was 'misused'", the Stern report 'misused' disaster analysts research by Robert Muir-Wood, head of research at Risk Management Solutions, a US-based consultancy. The Stern report, citing Muir-Wood, said: "New analysis based on insurance industry data has shown that weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement. [...] If this trend continued or intensified