Protecting the Earth makes strong economic sense since a dead planet offers no financial return. While addressing environmental threats incurs upfront costs, these investments are essential to safeguard future generations from total devastation.
The Breakthrough of the Stern Review
Two decades ago, mainstream economists widely believed the climate crisis would merely cause a minor economic blip that growing markets could easily absorb, rendering any spending unnecessary. Their accounting treated glaciers as worthless, viewed trees as valuable only when felled, and ignored livable climates entirely.
This perspective shifted when Nicholas Stern, a former World Bank chief economist advising Gordon Brown, published his review titled The Economics of Climate Change. Spanning 700 pages of data, the report challenged conventional wisdom by concluding that inaction costs exceed action costs, the climate crisis is a market failure, and economic growth can coexist with reduced greenhouse gas emissions.
Stern’s revolutionary breakthrough challenged the traditional economic practice of applying a “discount rate” to future events, which devalues future profits and losses. Applying this rate to the climate effectively assigns less value to future lives, making actions that protect growing children appear financially uneconomic.
Traditional Resistance and Modern Challenges
Before Stern, Yale economics professor William Nordhaus argued that countries should budget for moderate global heating because cutting emissions would cost more than climate damage, relying on the same discounting of future lives. Traditional economists reacted with intense outrage to Stern’s challenge against central Treasury forecasting tenets, arguing that ethics belong outside GDP measurements.
Over the past 20 years, Stern’s analysis proved sound, often underestimating heating speed and economic consequences while overestimating renewable energy costs. Governments used his findings to justify bold climate strategies, while laggard administrations faced challenges at ballot boxes and in courts. Stern recently noted that if he rewrote the review today, he would emphasize biodiversity collapse as a major economic and national security threat.
Despite these advancements, traditional economic approaches persist. Nordhaus published papers in 2018 claiming that 3C or even 6C of global heating would cause minimal GDP losses, earning him a Nobel prize that same year. Universities worldwide continue training economists in these traditional growth models, and governments and businesses still rely on optimistic predictions despite shattering temperature records.
These outdated economic models leave governments refusing to act, markets overvaluing fossil fuels, and insurers allegedly masking climate risks. Achieving a thriving future economy requires adopting a new economic system that properly values the planet and human societies, following the path Stern laid out two decades ago.
