Nordhaus review of Stern on global warming

Here is Bill Nordhaus’s critique of the Stern report.  Nordhaus argues that Stern’s "new" results boil down to the choice of a lower discount rate.

I agree with Stern that the discount rate should be zero or near-zero for resources which will not be reinvested but rather represent alternative consumption streams across the generations.  If we are doing normative analysis, however, and considering alternatives to controlling global warming, a’ la Copenhagen Consensus, we are by definition considering other investments.  In that case the correct rate of discount is given by opportunity costs, which might be quite high, provided the alternative investments will in fact be undertaken.  (On this topic, there are a few really good comments here.)

Having pondered the report a bit more, my main question is what it would cost for China and India to cut back on carbon emissions, all relevant institutional changes included in the calculations.  In other words, that figure should count costs of persuasion, enforcement, and implementation, not just the cost of one technology rather than another in the abstract.  We do not have a good sense of these costs, and given how many basic tasks these economies fail at, I can imagine the cynic citing the figure of infinity.  (To consider one analogy, what is "the cost" of getting avian flu out of China?)  Furthermore China in particular has a high rate of savings, and both economies have high rates of return on capital.  Current compliance costs should thus be compounded, when considering their future importance, at rates considerably higher than zero. 


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