Another day, another 600-page apocalyptic report on climate change.
This time around, it's "The Economics of Climate Change," a 16-month-in-the-making opus also known as "the Stern Review," commissioned by the U.K. government under the auspices of Sir Nicholas Stern, former chief economist of the World Bank. As such, it has a bit more gravitas and heft than your average climate change alarm bell, but the 27-page executive summary doesn't offer much that is new. Executive summary of the executive summary: Economic damage from climate change likely to outweigh the costs of mitigation. But, the earlier we start mitigating, the lower the overall costs. And the ever-popular: The developing nations least responsible for causing climate change will be the most devastated by it.
Same old, same old. But consider this piece of rhetoric: "Climate change presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen."
A market failure is an instance of "free" markets not working optimally. An example might be when a monopolist gains control of a given market and hikes prices without restraint. Or the deregulation of electricity generation results in higher prices. Or the U.S. healthcare system.
Pollution, as seen through an environmental economics lens, is another example of market failure. If it costs less for a company to dump toxic waste in a river than to comply with government regulations, then the market is not providing the correct behavioral incentives. The Stern Review, by depicting climate change as market failure, is making a strong environmental economics case that governments need to rejigger markets to create different incentives.
But as has been discussed here before, there is another school of thought that holds that environmental degradation, climate change, species extinction, etc., are a consequence of market-based capitalism, rather than just strong hints that the engine powering the global economy needs a tuneup. In this perspective, global warming is the Day of Judgment for humanity's current system of self-organization and the threat of global devastation is rated as the most compelling possible rebuttal to a philosophy of unending economic growth. Seen this way, it is little wonder that conservatives fight so hard against even acknowledging that there is a problem. For them, a stance of skepticism about climate change is a holdover from the Cold War. If Lenin was alive today, he's be pushing a carbon tax. He must be stopped!
Even if you don't subscribe to a fundamentally anti-capitalist worldview, the economics of climate change demand making a clear philosophical choice about the proper role of government in human affairs. For some economists and environmentalists, a market failure on the scale of catastrophic climate change is a direct call for activist government intervention. The Stern Review makes that case in terms that only the most ideologically hidebound can ignore. And even if it does so unintentionally, by categorizing the economic costs of climate change as a market failure, it is making an implicit critique of the entire thrust of the industrial revolution.