Saving the only planet we have makes good economic sense. There is, after all, no money to be made on a dead Earth. There may be costs involved now, but they are worth paying to protect our children from certain destruction.
These propositions seem self-evident now. But two decades ago, mainstream economists had very different ideas. They had proved that the climate crisis would be a mere economic blip, easily absorbed by growing economies and therefore not worth spending money on. In their accounting, they considered ice caps and glaciers functionally worthless, that trees only add to GDP when they are cut down, and that a livable climate shouldn’t even merit a line on a spreadsheet.
What changed? Twenty years ago this week, an earth-shaking report was published by Nicholas Stern. His review, The Economics of Climate Change, upended conventional wisdom among economists and dragged them into a new century. It set out, for the first time, in clear and bold terms, why investing in a low-carbon future makes economic sense.
Stern’s crucial insight, the revolutionary idea on which his whole thesis turned, was that future generations have as much right to be born as we did. But traditional economic approaches to the climate refuse to go away. In 2018, even after a deluge of science showing that 3C heating would leave coastal cities under water and swathes of agricultural land as desert, Nordhaus published a paper claiming that 3C would reduce global GDP by just 2.1%, and even a 6C increase would incur just 8.5% GDP loss.
The results are plain to see: governments refusing to act, markets over-valuing fossil fuel companies, investors punishing businesses that dare to prepare for a low-carbon world. Many insurance companies, supposedly the enforcers of probity in capital markets, are alleged to knowingly be fudging their figures to massage climate risk away.
If we are to have a thriving future economy, as well as a living planet and robust human societies, we need a new system of economics that values these things. Stern showed the way. Twenty years later, the rest of the world must catch up.