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Disregard the Stern warning!

Philip Lloyd

Energy Institute, Cape Peninsula University of Technology

In October 2006, Sir Nicholas Stern, then a UK Treasury deputy secretary seconded to the office of the Prime

Minister, Tony Blair, produced a Review on the Economics of Climate Change, a tome of some 575 pages. He was

rewarded by being made Baron Stern of Brentford. He has since left government and now holds a chair at the

London School of Economics. He spends a lot of time travelling the world, spreading the message of his report,

that we will minimize the costs of climate change if we act now and spend large sums to mitigate the impacts.

Governments have warmed to his message. They see justification for raising huge taxes on carbon. He is due

back in South Africa shortly.

In the five-and-a-half years since he wrote the Review, the world has had the opportunity to consider his

findings. By and large they have been rejected. He claimed The scientific evidence is now overwhelming:climate change presents very serious global risks, and it demands an urgent global response. When the worlds

leaders met in Copenhagen in 2009, they were not moved by the call to urgent action. When they met again a

year later in Cancun, urgent action was still not high on their agenda. Another year later, in Durban, they agreed

to resolve in 2015 actions that would be taken by 2020 hardly an urgent programme.

He exaggerated the dangers, inflated the costs, and overstated the benefits of early action. What was the nature

of these amplifications?

First, he used models that predicted that if the carbon dioxide concentration in the atmosphere doubled from

the pre-industrial level of 280ppm to 560ppm, the average temperature would rise by 30C. The world haswarmed about 0.8

0C since 1860. About 0.4

oC of that has been natural because human emissions of carbon

dioxide only became significant after about 1950. So at worst the increase in carbon dioxide has only caused

about 0.40C rise in temperature. The carbon dioxide has already climbed to nearly 400ppm, more than 40%

above pre-industrial levels. This implies that if the carbon dioxide concentration were to double, the average

temperature would rise by at most 10C.

This has caused scientists to examine closely the models which Stern used in making his prediction. The models

included an assumption called feedback, which has a value of around +2. Recent measurements have shown

that a value between 0 and -1 is more likely, which would imply about a 10C rise for a doubling of the carbon

dioxide, just what has been observed in the real world.

So Stern overstated the probable warming by a factor of at least three. He was relying on the 2001 assessment

report of Intergovernmental Panel on Climate Change [IPCC]. The IPCC scaled down their projections in 2007, so

we cannot blame on Stern for this error. However, it had a knock-on effect when he came to consider the

impacts of his predicted 3oC temperature rise.

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The litany of disasters that Stern provided makes the apocalypse seem like a pleasant outing. Rising sea levels

will result in tens to hundreds of millions more people flooded each year. The world has warmed over the past

150 years. If a warmer world were causing disastrous floods, we would have seen it long since. The latest IPCC

report estimates around 30cm sea level rise per century. Everywhere our existing defences against the sea are

about 5m above normal high tides, so that a storm surge will not bring floods. At worst, a few waves overtop

our defences every year. In a hundred years time, we might need to add three bricks to our protection.

He claimed Vector-borne diseases such as malaria and dengue fever could become more widespread if effective

control measures are not in place. Note the hypothetical could. The spread of malaria is not driven by

temperature, but by public health measures. When South Africa gave up occasional spraying with DDT, the

incidence of malaria soared. When we re-introduced DDT, the incidence went back to low levels.

Ecosystems could be particularly vulnerable to climate change, with around 15 - 40% of species potentially

facing extinction after only 2C of warming.Declining crop yields, especially in Africa, could leave hundreds of

millions without the ability to produce or purchase sufficient food. The litany of disasters goes on and on, always

with that nasty little hypothetical tucked away in the authoritative statement. A moments thought about these

two in particular will reveal their shallowness. We all agree the world has warmed over the past 150 years. Are

ecosystems disappearing because of climate change? Are crops yields demonstrably down? No, and no again.

The International Union for the Conservation of Nature estimates species loss at about 400 per century,

unchanged for the past four centuries. And in a high-carbon world the crops are doing better and better, as the

Dutch florists, who fill their greenhouses with extra carbon dioxide, could have told the noble lord.

So with inflated damage, it was easy to overstate the costs. But where Stern really went astray was in the

impact of these overstated costs. You would not have expected a professor of economics to make a mess of

this, but the weight of criticism from academic economists strongly suggests that he did. He employed a

discount rate that was so low that almost any future impact would have a significant economic impact today. As

one of his severest critics, William Nordhaus of Yale University, observed:

Suppose that scientists discover a wrinkle in the climate system that will cause damages equal to 0.1 percent of

net consumption starting in 2200 and continuing at that rate forever after. How large a one-time investment

would be justified today to remove the wrinkle that starts only after two centuries? Using the methodology of the

Review, the answer is that we should pay up to 56 percent of one years world consumption today to remove the

wrinkle. In other words, it is worth a one-time consumption hit of approximately $30,000 billion today to fix a

tiny problem that begins in 2200.

If Lord Stern were an insurance salesman, we would instantly send him packing. Instead, Governments

everywhere welcome him with open arms. Our own Treasury quotes his findings in their attempts to justify

taxing carbon as if his review were some religious tract. Why does he enjoy this status? I can only conclude that

politicians everywhere see their dreams realized. Finally there is a justification for taxing hot air.

(1080 words)