Climate and Development Economics: Balancing Science, Politics, and Equity

The paper critiques integrated assessment models (IAMs) for relying on controversial assumptions that often underestimate climate risks and ignore regional inequality. It advocates for cost-effectiveness analysis over cost-benefit analysis to implement precautionary climate targets and discusses various ethical frameworks for burden-sharing between industrialized and developing nations.

• There is a significant disconnect between climate science and climate economics; while scientists warn of imminent threats and irreversible thresholds, many economists advocate for a slow start to emission reductions based on cost calculations.
• Integrated assessment models (IAMs) frequently underestimate extreme climate risks by using average or 'best-guess' values for parameters, failing to account for 'fat tails' in probability distributions where extreme outcomes are more likely than a normal distribution suggests.
• The quadratic damage function commonly used in IAMs to project economic losses lacks a firm empirical or theoretical basis, and changing this assumption to a cubic function can significantly increase projected annual damages.
• Computable general equilibrium (CGE) models introduce distortions by assuming fixed employment and the impossibility of 'no-regrets' emission reductions (options with zero or negative net cost), which artificially inflates the overall cost of mitigation.
• Many IAMs incorporate ethical biases through 'Negishi weighting,' which freezes current income distributions and prevents the models from recommending global income equalization, and through damage functions that value lives in poor regions significantly lower than those in rich regions.
• Cost-effectiveness analysis is presented as a superior alternative to cost-benefit analysis for climate policy because it focuses on the cheapest means to reach a scientifically determined precautionary target rather than attempting to assign monetary prices to priceless ecosystems or human lives.
• According to McKinsey (2009) projections, achieving a 450 ppm CO2-e stabilization trajectory by 2030 would have a marginal cost of €60 per ton of CO2-e, with nearly one-third of those reductions having zero or negative costs.

APA

Stanton, E. A., & Ackerman, F. (2009). Climate and Development Economics: Balancing Science, Politics, and Equity. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/Climate/climate-dev-economics-balancing-science.pdf

Chicago

Stanton, Elizabeth A., and Frank Ackerman. Climate and Development Economics: Balancing Science, Politics, and Equity. Stockholm Environment Institute, 2009. https://www.sei.org/mediamanager/documents/Publications/Climate/climate-dev-economics-balancing-science.pdf.

Wikipedia

{{cite report |last1=Stanton |first1=Elizabeth A. |last2=Ackerman |first2=Frank |title=Climate and Development Economics: Balancing Science, Politics, and Equity |publisher=Stockholm Environment Institute |date=19 June 2009 |url=https://www.sei.org/mediamanager/documents/Publications/Climate/climate-dev-economics-balancing-science.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stanton2009climate, author = {Stanton, Elizabeth A. and Ackerman, Frank}, title = {{Climate and Development Economics: Balancing Science, Politics, and Equity}}, institution = {Stockholm Environment Institute}, year = {2009}, month = jun, url = {https://www.sei.org/mediamanager/documents/Publications/Climate/climate-dev-economics-balancing-science.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }