The 'business as usual' scenario, as outlined in the Stern Review, describes a situation where individuals, governments, and companies prioritize their own interests—such as pleasure, political goals, and profits—without adequately considering the external consequences of their actions on others, particularly future generations. The Review posits that the significant changes required for climate action cannot be achieved if this approach continues.

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The Stern Review on the Economics of Climate Change, a 2006 report by economist Nicholas Stern, assessed a wide range of scientific evidence on climate change impacts alongside a detailed analysis of the economic costs. [1] Its primary conclusion is that the benefits of strong, early action significantly outweigh the costs of inaction. [1, 3] The Review's analysis was based on a specific discounting approach to value future generations. It applied a total discount rate of 1.4%, which comprised a 1.3% annual discount to account for future generations likely being richer due to economic growth, and a 0.1% annual discount for the small risk that future generations might not exist. Based on this low discount rate, Stern advocated for immediate and substantial policy changes by governments and businesses to invest in limiting CO2 emissions to safeguard the future environment.

The Stern Review on the Economics of Climate Change (2006)

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In 2014, the United Nations Intergovernmental Panel on Climate Change (IPCC) corroborated the primary conclusion of the 2006 Stern Review. This endorsement reinforced the idea that the economic benefits of implementing prompt climate change action are greater than the costs associated with inaction.

Reinforcement of Stern Review's Conclusions by the IPCC (2014)

To achieve a significant cut in greenhouse gas emissions, major analyses like the Stern Review propose a multi-pronged 'early action' approach. This involves four key strategies: reducing the consumption of energy-intensive goods, switching to different energy technologies, lessening the environmental impacts from agriculture and land use, and improving the efficiency of current technologies.

Early Action Strategies for Climate Change Mitigation

The 'Business as Usual' Scenario in the Stern Review

The discount rate used in the Stern Review to weigh the wellbeing of future generations consists of two main components. First, it includes a 1.3% annual discount based on the expectation of rising future productivity, which implies that future generations will be wealthier. [1] Second, it adds a 0.1% annual discount to factor in the existential risk that there may not be surviving generations in any given future year. [1, 14] This approach notably does not include discounting based on pure intrinsic impatience.

Discount Rate Calculation in the Stern Review

Several economists, notably William Nordhaus, challenged the Stern Review for its use of a low discount rate, advocating for a higher rate of 4.3%. [2] Nordhaus contended that Stern's rate gives excessive weight to impacts in the distant future. [2, 8] He concluded that applying a higher, more conventional discount rate would cause the review's 'dramatic results'—its urgent policy recommendations—to 'disappear'. [2, 12]

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