Stern Hearing on the Economics of Global Warming

In a genial and business-like setting, the Senate Energy Committee dealt with Sir Nicholas Stern’s, Stern Review of the Economics of Climate Change yesterday morning. Much of the controversy over the report stems from Stern’s supposed loose usage of the discount rate, which detractors say inflates the potential cost of inaction. These calculations as well as a few other controversial ones were not a focus of the hearing. In fact the other two panelists, Henry Jacoby, Ph.D from MIT and Gary Yohe, Ph.D of Wesleyan, said that these controversies do not detract from the need to address climate change. Yohe even said that the “economics tell us unambiguously that it is time to act,” and Jacoby, despite openly questioning some of Stern’s calculations in his opening statement, stated that he agrees with the general tenets of Sir Stern’s report.

The Senatorial representation was professional and inquisitive. Senator Domenici (R-NM) pressed Stern with regards to action by China and India, saying that inaction by them makes action by us nearly worthless. Stern noted that they are moving in the right direction, but need guidance from the U.S. as well as the EU. Domenici openly called for worldwide cooperation in R&D on clean technologies (specifically on clean coal, but also mentioning solar and biofuels), saying that billions of dollars from countries around the world should be invested in this. He also brought up the point of adaptation, questioning whether there is anything we can do to stop climate change, or that changes are already inevitable. We should be focusing on adaptation.

Senators Dorgan (D-ND) and Murkowski (R-AK) followed on two of Domenici’s concerns. Dorgan pressed Stern on China and India and how they would handle the market pressures resulting from regulation-induced increasing labor and production costs. Murkowski seconded the call for adaptation discussions. The panelists also agreed to adaptation. Stern referred to it as adaptive risk-management.

Towards the end of questioning the focus shifted to mitigation approaches. Senators Corker (R-TN) and Salazar (D-CO asked the panel their preferred policy methods. All three panelists voiced support for use of taxes, passively decrying the taboo stature of carbon and gas taxes. Yohe called for mostly taxes, worrying about the volatility of prices in a cap-and-trade market. Jacoby also preferred taxes to cap-and-trade, but did not worry as much about volatility as he said safety valves and banking systems can be used to effectively control the volatility. Stern believes in a comprehensive approach, employing both taxes and cap-and-trade to different areas of the market.

All the Senators praised Sir Stern’s report. The only Senator that had any hint of Inhofe-esque talking point skepticism was Senator Thomas (R-WY) who only asked two questions and immediately left.