Stern was right: economics must abandon traditional growth models that discount the future and adopt a system that values a livable climate
Source: https://www.theguardian.com/profile/fiona-harvey. "The climate crisis will destroy our economies – we learned this 20 years ago. When will we act? | Fiona Harvey | The Guardian." October 28, 2026. www.theguardian.com
The Gist
Twenty years ago, Nicholas Stern showed that fighting climate change makes economic sense, mainly by refusing to treat future lives as worth less than present ones. He was proven right, yet old-fashioned economic models that downplay climate damage are still taught and used, and they help justify inaction. The author says the world needs to catch up and adopt economics that properly values a livable planet.
Conclusion
The world's economic institutions should abandon traditional growth-and-discounting models of climate economics and adopt, as Stern's review pointed the way to, a new economics that values a living planet, because acting on climate is sound economics and continued reliance on the old models is driving governments and markets to inaction.
Premises
- The 2006 Stern review, using standard economic tools, concluded that the costs of climate inaction exceed the costs of action, that climate change is a market failure, and that growth is compatible with cutting emissions.
- Traditional economic models, including Nordhaus's, rely on discounting future damages, which assigns less value to future lives and makes protective action today look uneconomic; this is an ethical and analytical distortion.
- In the 20 years since, Stern's analysis has been found sound, and if anything he underestimated the speed of heating and its economic consequences and overestimated the cost of renewable energy.
- Traditional approaches persist: Nordhaus's 2018 paper claimed 3C would cost only 2.1% of GDP and 6C only 8.5%, he won a Nobel prize, the models are still taught widely, and low-damage predictions are still used by governments, businesses and institutions.
- These outdated models have real consequences: governments refusing to act, markets over-valuing fossil fuel companies, investors punishing low-carbon preparation, and insurers allegedly understating climate risk.
Assumptions
- The persistence of traditional damage estimates is a major cause of policy inaction and market misallocation, rather than just a justification for it or a minor factor compared to political and vested interests.
- Ethical considerations about future generations should be incorporated into economic valuation, and a low discount rate is the appropriate way to do so.
- Stern's later vindication on heating speed and renewable costs validates his methodology and discounting choices, not just his conclusions.
- Nordhaus's GDP-loss figures are representative of the models still in use by governments and institutions.
- A 'new system of economics' valuing the climate is feasible and would produce better outcomes than reforming existing models.