#MeetTopEnvEcon – Thomas Sterner

Thomas Sterner’s CV reads like a book. In fact, it is a book, it has a table of contents,  it is 64 pages long, 40 of which are only listing his publications. He wrote over 100 publications in journals, 21 books or monographs, over a 100 articles in books or reports, and over 200 journalistic articles or speeches. He is extremely active on the policy side, both having participated at COP meetings and helped write an IPCC report, and is advising various governments around the world. In order to achieve this one has to not only show a huge commitment and dedication, but one must also be able to easily transition between fundamental research and talking to policy makers alike. This is clearly a very difficult task that few can manage to this degree.

Thomas comes across as a very relaxed, even casual person. And it is definitely fun and interesting to talk to him. So, if you meet him at the next conference, don’t worry about approaching him and asking him the questions about discounting or policy that you had always wanted to ask. Until then, I hope this interview gives you some further insights into his thoughts and research.

Edit 5. January: I now included an Express Views interview with Thomas:

A new highlight, which I from now on hope to be able to add to these series, is a short video summary of the interview.

 

Could you please give me a brief background of yourself and your main research interests.

I went to school in England where you specialise very early. From age 15 I only did natural science (A levels in physics, chemistry and maths) and I have always taken an interest in natural science issues. When I was a young adult I was also very involved in various kinds of environment movements. So, when I started to specialize in doing a PhD in economics I was attracted to questions about the environment, and other issues like development. But at the time there was not really anyone in this department in Gothenburg who was working on environmental issues, so I kind of had to invent the subject a little bit for myself. People at that time generally used to say that environmental economics didn’t seem to make sense as a phrase: you either were an economist or you had an interest in the environment. They seemed to be opposites. I remember very often the first half an hour of a lecture you would have to defend environmental economics and say why it makes sense.

I wrote my thesis on the use of energy in Mexican industry. Mexico has very cheap, very plentiful oil, and a result is that a lot is used inefficiently. I looked at various aspects of technology choice, sectoral composition of industry, a little bit on issues related to the Dutch disease. After my thesis I worked on the role of gasoline taxes and prices and calculations of the societal response as usually expressed in price and income elasticities. In short, I can tell you that if fuel prices go up 10% then fuel consumption will go down by say 7% – but of course it takes some time. These elasticities are decisive because fuel taxes are among the most important real policy instruments for climate change that we have. More time is spent talking about cap and trade schemes but the single most important instrument that has actually reduced carbon emissions is fuel taxation – for example in many European countries. This can teach us a lot about what it would take to get a price for carbon all over the world.

Later I started to work on the theory of discounting because I was interested in how our vision of the future affects our view of the environment.

What article/book of yours would you call your best?

I have a small collection below: If I have to choose one it might be the one with Michael Hoel on discounting and relative prices. In this article we show that if you have economic growth in some sectors but not in all of them, then you have structural change and you will have important and big changes in relative prices. I then applied this result in an article with Martin Persson called “The even Sterner Review”, which was also a pun on my name and on Nick Stern’s name, whose “Stern Review” shows that climate change is important and in fact contradicts William Nordhaus’ findings. Stern assumes a low discount rate and this in turn has been critized by Bill Nordhaus and others like Marty Weitzman. We showed that you could get the same kinds of radical results without assuming overall low discount rates but instead you have really different discount rates in different sectors.

Hoel, M. and T. Sterner (2007) ‘Discounting and relative prices”, Climatic Change, vol. 84, PP 265-280)

Thomas Sterner and Martin Persson. (2008) “An Even Sterner Review”: Introducing Relative Prices into the Discounting Debate, Review of Environmental Economics and Policy, vol 2, issue 1.

Otherwise a very early article that I think was quite pioneering is this one:

Azar, C. and T. Sterner (1996) ‘Discounting and distributional considerations in the context of Global Warming’, Ecological Economics, Vol.19, pp 169-184

What is your feeling about Nordhaus getting the Nobel Prize?

I was of course happy that the area of climate change is given this recognition. Nordhaus argues for a worldwide price on carbon and for stronger international climate agreements. This is great. At the same time I would like to push a lot further. I think it is unfortunate that he labels scenarios that lead to 3 or even 3.5 degrees C as optimal. True he has some caveats that this only applies if damages do not turn out worse than expected. But even so this is quite unfortunate when the natural science community says two degrees is too dangerous and that we should aim for 1.5 degrees. I have indeed written a number of articles criticizing various aspects of his work. I think we need to be more radical and realistic when it comes to discounting. We simply cannot apply standard constant and linear discount rates of say 3% because it implies that future centuries are worth nothing to us. We also cannot take too lightly the ethical issues: We are implicitly comparing costs and benefits of climate actions. The trouble is that the benefits accrue to ourselves – shorter travel time by car or plane than by bycicle, increased comfort through airconditioning etc. The costs of climate damage will hit others – farmers whose lands will be drowned in Bangladesh or labourers who will be hit by heat waves in India, We cannot just say that if benefits are higher than costs then the policy is good because to do that ethically we would need to actually compensate the losers – which does not look likely – nor even feasible. I have written about these matters with Christian Azar and with Martin Persson and Michael Hoel as mentioned above. Finally with Peter Howard, I have analyzed the damage functions Nordhaus uses and found that in many cases he ends up implicitly giving a bit too much weight to his own early estimates and not enough to recent – and higher estimates of damage.

 

Would you mind giving a list of essential articles that a young researcher in your line of research should read?

Alpizar, F., Carlsson, F., & Johansson-Stenman, O. (2008). Anonymity, reciprocity, and conformity: Evidence from voluntary contributions to a national park in Costa Rica. Journal of Public Economics, 92(5-6), 1047-1060.

Barrett, S. (1998). Political economy of the Kyoto Protocol. Oxford review of economic policy, 14(4), 20-39.

Boulding, K. (1966) The economics of the coming spaceship Earth in Environmental Quality Issues in a Growing Economy (ed. Daly, H. E.). Johns Hopkins University Press.

Brekke, K. A., & Johansson-Stenman, O. (2008). The behavioural economics of climate change. Oxford Review of Economic Policy, 24(2), 280-297.

Carlsson, F. (2010). Design of stated preference surveys: Is there more to learn from behavioral economics?. Environmental and Resource Economics, 46(2), 167-177.

Dasgupta, P. S., & Heal, G. M. (1979). Economic theory and exhaustible resources. Cambridge University Press.

Dasgupta, P., Gilbert, R. J., & Stiglitz, J. E. (1982). Invention and innovation under alternative market structures: The case of natural resources. The Review of Economic Studies, 49(4), 567-582.

Fehr, E., & Leibbrandt, A. (2011). A field study on cooperativeness and impatience in the tragedy of the commons. Journal of Public Economics, 95(9-10), 1144-1155.

Fredriksson, P. G., Neumayer, E., Damania, R., & Gates, S. (2005). Environmentalism, democracy, and pollution control. Journal of environmental economics and management, 49(2), 343-365.

Gollier, C., & Weitzman, M. L. (2010). How should the distant future be discounted when discount rates are uncertain?. Economics Letters, 107(3), 350-353.

Harrington, W., Krupnick, A. J., & Alberini, A. (2001). Overcoming public aversion to congestion pricing. Transportation Research Part A: Policy and Practice, 35(2), 87-105.

Hepburn, C., Duncan, S., & Papachristodoulou, A. (2010). Behavioural economics, hyperbolic discounting and environmental policy. Environmental and Resource Economics, 46(2), 189-206.

Keohane, N. O. (2009). Cap and trade, rehabilitated: Using tradable permits to control US greenhouse gases. Review of Environmental Economics and policy, 3(1), 42-62.

Nordhaus, W. (2015). Climate clubs: Overcoming free-riding in international climate policy. American Economic Review, 105(4), 1339-70.

Nordhaus, W. D. (1969). An economic theory of technological change. The American Economic Review, 59(2), 18-28.

Nordhaus, W. D. (1991). A Sketch of the Economics of the Greenhouse Effect. The American Economic Review, 81(2), 146-150.

Weitzman, M. L. (1974). Prices vs. quantities. The review of economic studies, 41(4), 477-491.

Weitzman, M. L. (1998). Why the far-distant future should be discounted at its lowest possible rate. Journal of environmental economics and management, 36(3), 201-208.

Weitzman, M. L. (2009). On modeling and interpreting the economics of catastrophic climate change. The Review of Economics and Statistics, 91(1), 1-19.

 

And could you be so kind and give a reference for a policy-oriented article or book that sums the research in your field for an interested policy maker?

Sterner, T. and J Coria (2012) Policy Instruments for Environmental and Natural Resource Management, Second edition, RFF Press, Routledge. ISBN 978-1-61726-097-1

Is this a book you would give to an environmental minister?

Well – this is still a very academic text by a policy maker’s standard but one Swedish environment minister (Kjell Larsson) did recommend it as a cookbook that should be on the desks of all his colleagues.

If you had to give young researchers in environmental economics some advice, what would it be?

An advice is to keep a broad mind and to read a lot of things. Not only in resource economics, but also welfare theory. Not only micro, but also macro, growth, game theory, ecology. Politics, psychology and natural science. It is good to be broad. Professors very often tell their students to be specialized, to focus on one thing, and I suppose that is good. We have to do that as well. But I also feel that the value of taking a broad view should not be forgotten. Somehow you have to find a way to combine focusing to get proficient on the one hand with – on the other hand: keeping an open mind and being innovative – for which you need some breadth.

Young researchers nowadays, if they apply to a department, then they would be evaluated by their publications. It seems to be easier to publish in high quality journals with a very specific minor point than with an article that takes a broad view. How does this affect what you just said?

It is important to keep your curiosity and broad vision alive. So students should develop one area deeply but keep attention to other aspects. Even to my own regrets I sometimes say: Why didn’t I study more game theory, or econometrics, or political science or other subjects. A lot of crucial discoveries are actually formed by a wonderful meeting of different subjects, and cross-fertilizing between them. It is always a matter of balance. But we also have different personalities.

You participated in COP21. You are a Member of the Scientific Council for Sustainable Development to the Swedish Government and and advisory council to the French ministry of finance. How is it for an economist to work together with a politician?

I worked for one year and a half with the Environmental Defence Fund in the United States and I got some very interesting lessons on how to communicate with policy makers. And it really is a different approach to research. The Environmental Defence Fund uses a lot of research, they employ many researchers, but the approach is different. When we do research we try to be policy relevant, we focus research on interesting questions, then we try to think of policy makers when we write conclusions and finally we invite some policy makers to our presentations. So we already do a lot more than many other economists do. But if you really want to meet a policy maker, then you kind of have to go the opposite route altogether: you start out trying to find out when the policy makers will take their decisions; then aks if there is a window of opportunity to affect this decision; then where do I find the best researchers in the world who can communicate their research in a way that is relevant exactly for this decision. Then you have to visit the policy makers, and you adapt to their agenda.

We have to be aware that our way of communicating through seminars is quite ineffective. We may ask politicians whether they want to come and listen, without taking into account whether it is an election period, or whether this is the right moment for them to write legislative proposals. If you really want to have influence you have to make quite a big and professional effort to find the policy makers and to target your message to them, to their agenda and their needs.

Each country also has its own flavour. Sweden, for example, has a rational science flavour. Swedish politicians, before they do something, they often commission big public inquiries with scientists to get a well-argued report as a basis for their legislation. But there are other countries where this is less the case.

You have been a lead author on the IPCC WG 3 AR5 report, and in particular a coordinating lead author on Chapter 15, National and sub-national Policies and Institutions. How were you chosen? (After all it is the first step to meet policy makers)

I am not quite sure. Somehow my name must have been suggested and the environmental ministry asked me if I can do this. There are two selection criteria: on the one hand there is the scientific community, and the IPCC tries to find the best scientists for a given task, and at the same time there is a country process because you want scientists from all the countries in the world. Someone has to pay the bill, so there is a bit of a national process at the same time.

What is not appreciated very often is that the IPCC is a giant reviewing machinery that just summarizes the literature. Very often people will ask: What is new in the last IPCC report? And the answer is: Nothing, it is a review of the literature, it is not supposed to be new!

There is much debate on the IPCC reports. Some claim it is written by a small group of researchers who try to push their opinions on others and that it is biased. What would be your reply to them?

Nothing could be less true. Maybe these opinions are simply based on a lack of knowledge, or bias on the part of the speaker. There are people who want to deny that there is any scientific basis for climate change and who are against this scientific process altogether. The IPCC process is a very big effort by very many scientists, a very detailed summary of the literature which takes five years to write. The total number of authors is in the oreder of a thousand and I know that the IPCC has a very transparent page with information about the whole selection process etc. We wrote around five versions, with a group consisting of 20 to 40 people for each chapter, from many different countries and from many different subjects, a mix of social science mainly. There were many discussions among the sociologists, economists and political scientists. And then there were other types of divisions, developed and developing countries, East and West, different styles of writing, different interests.

This sounds very much to me like politics and not science?

I don’t think so, but you certainly make me think. In the IPCC report there is hardly any original work, maybe some scenarios and calculations for frameworks, but basically it is a whole refereed work. We summarized work that says that there is climate change and work that says that there isn’t, and work that says that there is a big problem, and work that says that it is a small problem; work that says that it can best be dealt with by government tax and work that says that we should forbid things and different kinds of policy instruments. The debates are natural and good scientific debates. A survey is supposed to be a neutral exercise but we are all human and have our biases. This is the reason why a summary written by a thorough mix of people, nationalities and subjects, will tend to be a more inclusive document than if it was written by one person.

And there are thousands of people, just on our chapter, which is a hundred-page chapter, we receive something like 30,000 comments which we answer in writing. In addition to this there are review editors, and all kinds of other people who give responses and comments. But in the end it is the same as the bible – it is written by people and so inevitably there is some room for discretion when you choose a word. But the discretion is really minimized through the process, through the large number of authors, and all the people who are watching this. And then there is an additional process, where everything is summarized, where the most important things are taken out. Then there is an additional step, a summary for policy makers, which is very carefully edited by large groups carefully going through all the pages.

Finally we were locked up in Berlin for a week with the representatives of all the governments in the world, and there is a political process, but basically just to check the understanding of every word and every line and then the governments of the world can intervene. For example, some countries said that the word high-income country was not well-defined (because some countries that had a high income in 2010 might have had a low income in 1980). Every single word can be discussed and this process helps reduce missunderstandings. There are no other problems where you first have a thousand scientists write a report for five years and then you have another thousand who read it and then you have all the governments in the world make sure they understand the conclusions. This is a very unusual and elaborate process and there is no other area of science where such an effort is made. Whatever is in this IPCC book is not only “not new”, but it is so well-established and so certain that there shouldn’t need to be so much discussion about it. And it is, therefore, by its very nature, a conservative and careful review of the literature.

Which impact would you say does your research, which is mostly on policy and instruments, has had on policy making? Do you have examples?

The ideas I have been part of publishing on the declining discount rates, and on having lower discount rates in nature-based sectors, those ideas have been picked up in a few countries. I believe the Netherlands officially has different discount rates for different sectors, France and England have declining discount rates.

One of my students is now minister in the finance department of Rwanda, and another one is a junior minister in Tanzania, so through all sorts of students we can have some effect, especially in developing countries.

Finally, I have long been arguing for higher carbon taxes – and when it comes to transport this takes the shape of higher fuel taxes. I hope I have contributed to spread the idea that higher carbon taxes whether national or sectoral are good for the environment and not detrimental to the economy. France has recently decided to copy Sweden and have very high carbon taxes. They explicitly cite the Swedish experience when they motivate their higher carbon taxes and so I hope that I have contributed in some small way to making carbon taxes more acceptable.

Perhaps the biggest influence I have had is through development of my research group and teaching and policy work done with them. Since the early 1990s we have had around 50 students from developing countries who have done a full PhD in environmental economics with us in Gothenburg. Together with them, my colleague Gunnar Köhlin has led an effort to form a research community we call the Environment for Development Initiative. The EfD has a dozen centres now. In Africa we have centres in Ethiopia, Tanzania, Kenya and S Africa and are starting new ones in Ghana, Uganda and Nigeria. Then we have Colombia, Central America and Chile, Vietnam, India and China. All this is facilitated by funding from Sida and increasingly other donors like the World Bank. Also the research groups in Gothenburg and at Resources for the Future in Washington DC participate fully as do an increasing number of other research groups. We have annual meetings with at least a hundred researchers, taking turns to visit different centres. The last meeting was in Hanoi and gave not only a fantastic overview of exciting research on environment and development but also one day focused on policy issues in Vietnam.

And how do you think environmental economists could increase their say in the policy agendas?

It is difficult, but one good case in point is what to do about climate change. We are not having a lot of success. Climate policy is not as successful as we want. We have a message that there should be a price on carbon everywhere which is only very gradually gaining acceptance. But there is an increase in the number of trading schemes and more and more countries are choosing carbon taxes as well. Recent experience in France shows that protests can easily flare up when fuel prices are raised. It is vitally important to not just “raise taxes”. Politicians must explain the purpose of the tax, they must explain what they are going to do with the money collected and for instance say how the money will be spent or what other taxes will be lowered instead.

The tricky aspect is always as to what happens in the interim period: It is one thing for a country to agree to join in a world policy and for instance tax carbon. It is quite a different and much more difficult demand to ask a country to be a pioneer and to ban fossil cars or tax oil way before other countries have even started to think along those lines. However, without good examples and pioneers we would not have got far yet.

In what direction would you like to see environmental economics develop? What would be the obstacles?

We need to understand better the power of corruption. We are sometimes naïve about corruption. The truth is that corruption is extremely important for the political processes. There are examples of entire countries where corruption may be the main force in a given situation and so we are up against a mix of problems when it comes to climate change: There is a lack of information, or stupidity when it comes to climate issues, but then there is an alternative explanation, namely that there are forces of corruption who maybe do understand but just make a lot of money from selling coal or oil. The forces of corruption and ignorance can collaborate in dangerous ways and we need to understand that if there is opposition to a carbon tax then is this out of a lack of understanding or is it the power of lobbies who for instance have bribed the government?

How do you mostly get your ideas?

Very often by talking to people, informally. Some people will gather a big workshop and talk about ideas. Some people have a plan, they can program this process. They start by surveying the literature then they form a model and do the empirics. I admire that and I think it is excellent. For myself, it tends to be a less planned process. I tend to get good ideas in cafés. But then there is always a lot of systematic work afterwards to polish them. I actually find research is a little hard to plan. You get ideas by reading things, combining things, when you go for a walk, people you have been talking to. It is not always a linear process. The experience of real-world processes, the IPCC process, the referendum about nuclear power in Sweden, these things give broad ideas that you then think about for a long time. The idea for the role of relative prices and discounting (dual sector discounting) is a case in point. This idea was one I had for many years and then developed slowly before I found a colleague and we were able jointly to model it formally.

Are you more interested in fundamental research or do you try to shape actual policy through your research?  

I am somewhere in the middle of the spectrum, from the theorists to the empirical side, and from the theory to the policy side.

If there is something in our discipline that you could change, what would it be?

I wish more of my colleagues would focus on really important pressing policy problems. Parts of the broader discipline of economics have become somehow narrow, particularly this is noticeable in the way status and tenure are assigned and promotion decisions are made. There is a fixation on the “top-five journal publications and the ranking of journals is only based on the viewpoint of general broad economics, and it doesn’t take into account the specificity of environmental economics which is a bit of an interdisciplinary branch. So publishing for example in natural science journals is not given sufficient recognition. There is a sort of accounting of articles that does not take into account how much they have been cited nor if they are interesting. We do of course need to recognize excellence in tenure decisions but we should have a much broader recognition and for an interdisciplinary field that broad definition of journals is important and other metrics could also be useful. For instance citations, but it could also be the reviews people get on their teaching, or also we could try to gauge the depth of colleagues’ policy connections. These things are of course harder to measure.

Thomas, you are now 66 years. Shouldn’t you be retired by now? What keeps you going?

Retirement age is taken pretty seriously locally in Sweden. It is quite different from say the US. When I turned 65 I got all kinds of letters, that I could take the tram for free etc, but I have very little interest in retiring. I enjoy both lecturing and I give quite a lot of lectures to civil society, business or international organizations and I like that. I like working with graduate students and I like research. I still have a big research agenda, lots of energy, and no thoughts of retirement! I am still very worried about the world: How unfair and how unsustainable it is. There is a lot more work to be done. Not least in developing countries where the majority of vital decisions will be taken and where understanding of environmental economics is still quite rare. Luckily it seems the university is accepting this and I will continue to work on important issues for quite a few more years!

And now for a bit of fun. Do you know the concept of holidays or do you take your papers to the beach?

Both! I take both research and holidays very seriously. I spend a lot of time with my family, I take several months of summer vacation, I spend all my time away from Gothenburg in the Swedish countryside. And during those two months my priority is just to have fun – swim, fish, eat good food and play with my friends or children. But usually, every day, I do sit   in the shade and read or work on some research for quite a few hours. Just because I enjoy it!

Do rejections still make you angry?

Yes, they always make me upset. Not enormously, I tend to think that I have just been unlucky with the referees and then I send the articles off to another journal.

What is your favourite economics joke or anecdote from a conference?

I like surprises. For instance, when fishermen come to a conference or a course in fishery economics and show that they not only want to learn but that they already know a lot and have a lot to teach researchers too.

Please feel free to suggest someone else whose answers you would like to see.

You might want to interview my good friend and partner in building up our unit in Gothenburg: Gunnar Köhlin. He has such a passion for spreading science to the developing countries.

And then to get some more development experience: Eswaran Somanathan; Francisco Alpizar; Edwin Muchapondwa