TCS Daily


Stern und Drang

By Tim Worstall - November 10, 2006 12:00 AM

The Stern Review is out and now that people have had a couple of days to digest the 600 or so pages of heavy verbiage and math, we're starting to see some commentary on how well it's been done. Leave aside the screaming newspaper headlines that shout that we all drowned yesterday and will boil tomorrow and the general reaction from those who know the subject is 'Hunh?'

The one group not complaining are the economists looking at what the Review recommends should be done if indeed matters are as bad as the Review claims. Increased investment in new technologies, the rapid diffusion of these around the world, either carbon taxes or a cap and trade system of permits to reduce emissions: these are indeed what most economists would say was the rational way to deal with such a series of problems.

The Review also makes the eminently sensible observation that there is no point in any one country trying to work alone. As the report is written from a UK point of view the truth that that country is responsible for only 2% of global emissions is shown, along with the fact that even if the UK could become zero carbon emitting overnight that is less than one year's increase in the emissions from China. Those who are already baying for higher taxes in the UK as a result of the Review do seem to have missed that little nugget: any solution has to be global and it has to include the developing nations: something which we might remember Kyoto entirely failed to do.

One possible criticism, a valid one to my mind, is that having told us all how we need this wonderful example of international cooperation to make the problems less awful, there's little there that tells us how to actually get that international cooperation. As we've also all seen not every country has signed onto Kyoto yet: and I don't just mean the industrialized countries: to make the new proposed system work everyone has to sign on, the poor as well as the rich.

My own, very much larger, objection, I'll come to in a minute, after a look at what some other people are saying.

Nature, for example, reports that there are those who are not all that impressed:

Such criticisms come as no surprise to Mike Hulme, director of the Tyndall Centre for Climate Change Research in Norwich, UK. Hulme says that the British government has asked him many times to conduct a study on the total cost of climate change. He declined, as he does not feel it's a question that researchers can answer. Difficulties in estimating the impact of strategies such as coastal defences are only part of the problem. When other assumptions, such as the economic cost of species extinctions, are included, Hulme feels that the uncertainties become so great that he would not be able to defend the end result.

He says that Stern's team seems to have done a good job, but with so many assumptions involved, and the review having been conducted by a political appointee: "This is not the last word of scientists and economists, it's the last word of civil servants."

The Tyndall Centre? The last time we saw them they were writing a report on climate change for Friends of the Earth so criticism from that angle must be unwelcome.

Richard Tol is also mentioned there at Nature and his critique is up at the blog of Roger Pielke Jr, Prometheus. It's a list, among other things, of where he thinks the Stern Review has gone cherry picking. All numbers and values are taken from the most extreme ones in the literature. There's more on that blog as well along the same lines on things like damage from extreme weather events.

Environmental Economics really cannot believe the numbers that the Review comes up with. They appear so out of line with others reported that he's sure that something very strange is being done to get to them. Adam Smithee explains at least part of it: the use of extremely low discount rates. (Note: the discount rate used is extremely important. A high discount rate means that spending now to save in the future means that such spending is very hard to justify. Stern uses a very low discount rate, much lower than almost anyone else has even proposed.) Wat Tyler takes a more cynical view based upon his, well, cynical view of the way in which the British State works (or if you prefer, his robust view of public choice economics).

Perhaps the most surprising point made is from William Connelly who is actually a code cruncher on the climate change models (and how he will be alarmed at being quoted here):

Before I get back to that, I notice "If the Greenland or West Antarctic Ice Sheets began to melt irreversibly, the rate of sea level rise could more than double, committing the world to an eventual sea level rise of 5 - 12 m over several centuries.". Errrm... centuries? Current SRL is 2-3 mm/yr, ie 20-30 cm/century. Double that to 40-60 and you're a fair few centuries into the future before you hit 5m, let alone 12. SRL is the "great white hope" of impacts, since its unequivocally bad (at least I've never seen anyone assert it to be a good). 5m is SRL in a millennium might well cause problems, true, but I'm not really happy looking that far ahead - tech could do anything by then.

Even climate researchers aren't all that impressed with trying to predict out that far into the future. As an analogy, think back into history. Should the Northern Europeans not have started to use the horse collar, thus allowing them to plough the heavy soils, because 1,000 years later there's so many of us that CO2 levels are rising?

As you can see people aren't arguing about what should be done if the Review's predictions are correct. They're actually arguing about whether the Review is correct or not which is really a much larger problem for its supporters. Because I really don't think that the Review is indeed correct, either in its predictions for future temperature rises nor in the logic that it uses to urge us into mitigating actions.

My concern with the whole climate change movement, the very idea of it, has always been based on the economic fundamentals that underpin it. I've said here several times that I am largely with Lomborg: climate change is happening, emissions are causing at least some of it and we're responsible for at least some of those. I've not argued with the idea of a greenhouse effect as a quick comparison of Venus, Mars and the Earth show that it exists all right. But I have argued, repeatedly, that people are misunderstanding the Special Report on Emissions Scenarios (SRES) which are the economic models that underlie the UN IPCC reports on climate change. What is worse right now is that the Stern Review appears to have badly misunderstood what is being said in the SRES.

The Review takes the A2 family of scenarios as being the baseline. This is what he bases all of his subsequent calculations upon and he calls it the 'business as usual' model or BAU. Furthermore, he adds to the effects, puts in a few feedbacks that the IPCC certainly doesn't include, extends matters out for a far longer period of time, uses those very low discount rates and......aieee! But it is made very clear indeed in the SRES that A2 is not the baseline, it is not the business as usual case. All forty of the scenarios are equally likely and all forty of them contain no mitigating actions at all. That's actually in their very definitions: so to choose one of them only is, as far as all of the other climate science that's going on, simply wrong.

It might also be worth noting at this point that the A2 family actually provides, on its own, without the extra tweaking, the worst outcome in the SRES. So not only have we started with just one, we've started with the worst, then added to it. No wonder the costs of climate change look so high, the benefits of mitigating them so attractive.

As a little bonus for those thinking of membership in Greg Mankiw's Pigou Club the Stern Review is (and quite rightly) very much in favor of Pigouvian taxation. That is, making sure that the external costs of an action are added into the price by means of taxation. As I point out at my blog this means that fuel taxation in the UK should be coming down real soon now (although as Professor Mankiw argues, it should rise in the US). If you believe that that the Chancellor will follow the logic of the Review even when it means lower rates of taxation, well, have you heard about that great deal on a bridge in Brooklyn?

Now, to conclude this already rather over long piece I'd like to perform a great piece of prestididgitation. Truly, a thing of wonder and magic. We can actually do this very simply by looking at the numbers in the report alone: people say that the rich should bear the costs, whether they be of mitigation or adaptation, of climate change. Very well, who are the rich? Certainly it's not the poor peasants in Africa right now, but then, nor is it actually us, living high on the hog either. For all of the forecasts, scenarios and projections insist that the world economy is going to continue to grow: the rich will actually be our descendants. In fact, if the economy doesn't continue to grow making our descendants richer then there's actually very little to worry about with respect to climate change either. We should therefore do nothing and let the rich pay. Them.

Yet that is just too easy, too glib. So let us look again at the logic that the Stern Review presents to us. Using the A2 scenario, global GDP will grow by 2100 to some $243 trillion, spread over 15 billion people. (15 billion! I did say this was one of the worst outcomes of them all.) This scenario is based upon:

The A2 world "consolidates" into a series of economic regions. Self-reliance in terms of resources and less emphasis on economic, social, and cultural interactions between regions are characteristic for this future. ...People, ideas, and capital are less mobile so that technology diffuses more slowly than in the other scenario families. International disparities in productivity, and hence income per capita, are largely maintained or increased in absolute terms. With the emphasis on family and community life, fertility rates decline relatively slowly, which makes the A2 population the largest among the storylines (15 billion by 2100). Global average per capita income in A2 is low relative to other storylines (especially A1 and B1), reaching about US$7200 per capita by 2050 and US$16,000 in 2100. By 2100 the global GDP reaches about US$250 trillion.

Now, as the Review tells us, we can save them up to 20% of that GDP, by spending 1% of our own GDP each year from now on. That is, we can spend around $500 billion or so each year to save them $50 trillion. Put as bluntly as that it looks like a reasonable idea actually. However, what if it were one of the other scenarios that actually took place. One of the A1 family perhaps?


The A1 storyline is a case of rapid and successful economic development, in which regional average income per capita converge - current distinctions between "poor" and "rich" countries eventually dissolve. The primary dynamics are:

-- Strong commitment to market-based solutions.

-- High savings and commitment to education at the household level.

-- High rates of investment and innovation in education, technology, and                         institutions at the national and international levels.

-- International mobility of people, ideas, and technology.

The transition to economic convergence results from advances in transport and communication technology, shifts in national policies on immigration and education, and international cooperation in the development of national and international institutions that enhance productivity growth and technology diffusion.

Now, very roughly speaking, and firing about with a very large blunderbuss, the difference between those two scenarios or families of them is the difference between halting globalization in the A2 family and increasing it in the A1. In the A1 series we also get all the things that good little liberals (both Classical and the more modern American type) would like. The Classicals (and I) get markets, international mobility and so on; the American liberal types get lots of international institutions and cooperation. So we're all happy. But what does this mean for the living standards of our descendants? If they are to be exposed to the depredations of the multi-nationals and exploited by international capital no doubt they will be poorer than if they were allowed to develop more slowly in their own manner, with the emphasis on family and community life? Well, err, no:

In the A1 scenario family, demographic and economic trends are closely linked, as affluence is correlated with long life and small families (low mortality and low fertility). Global population grows to some nine billion by 2050 and declines to about seven billion by 2100. Average age increases, with the needs of retired people met mainly through their accumulated savings in private pension systems.

The global economy expands at an average annual rate of about 3% to 2100, reaching around US$550 trillion (all dollar amounts herein are expressed in 1990 dollars, unless stated otherwise). This is approximately the same as average global growth since 1850...

In fact, in this scenario, our descendants are four times richer per capita (that extra $300 trillion spread over fewer people) than they are under the plans of the Stern Review, even after we've been spending all that money for a century to mitigate the effects of climate change.

It's worth noting that point made about growth rates. The world has grown, on average, at 3% per year for 150 years, around and about since the invention of capitalism on any large scale. It's not too much to think that it might last another 94 is it?

So, to reiterate, the logic of the Stern Review is that we must take care for the living standards of our descendants. He, ex-World Bank economist, ex-Professor and Knight thinks that we should be spending large sums on mitigating climate change. I, two bit journalistic hack, think that we should let capitalism rip, extend globalization and make our descendants four times richer than his plans. To make the disagreement even more delicious, we're both arguing from exactly the same set of evidence, the generally agreed to be state of the art on the subject, the report from the United Nations International Panel on Climate Change.

Your choice whom you choose to believe, of course.

Tim Worstall is a shadowy figure in the international scandium oligopoly who would benefit enormously in his professional life from an expansion of spending upon renewable energy research. He blogs at www.timworstall.com.

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3 Comments

There's a paradox here, Tim
And very simply it's this. As you point out, Stern is supposed to be an economic expert. It's also certainly true that his report used the most pessimistic projections irrespective of their likelihood. So how can he have missed the fairly straightforward implications of the A2 scenarios? Is it reasonable to suggest that he's nothing but a glove being worn by the Tyndall Institute? What self-respecting economist ever advocated poverty as the answer to anything? Is this nothing more than a propaganda attempt within the economics world to regain the rhetorical highground after climate change economics were so thoroughly debunked by the Copenhagen Concensus?

Another paradox
This is from an essay I wrote for our National Business Review regarding Stern's WMT – weapon of mass taxation.

Stern words.
The Stern Report may well have tipped the balance away from “climate catastrophe scare-mongering” in favour of a measured and reasonable approach to the risks of climate change and how best to deal with them.
I have read a host of responses to the Stern Report, and with the exception of reporters selling horror stories, politicians seeking power, and bureaucrats seeking extra revenues, all have been highly critical.
Even scientists who accept standard “global warming doctrine” are embarrassed by the excesses and blatant errors of the Stern report,
Many suggest the exercise was designed to influence the US mid-term elections, and divert UK voters from Blair’s problems in Iraq.
Probably the most useful single critique is Climate Chaos: Don’t believe it, by Christopher Monckton in the UK Telegraph. Monckton was a policy adviser to Mrs Thatcher and his analysis covers the scientific, economic and policy issues with skill and precision. Readers can also download Monckton’s “references and detailed calculations” as a pdf file from a link at the top of the story. This background document is not for the faint-started but the story of how Mann and others set out to generate their false “hockey-stick” makes it worth reading by anyone interested in the integrity of science and policy-making.
The NZ Government still runs the hockey stick plot of climate behaviour on MfE’s Climate Change web page, even though most others have discreetely binned it. Understandably the Herald ran it again to illustrate its special feature.
Historians will be pleased that Monckton reassures us that the Medieval Warm Period and the Mini-Ice Age did happen after all, and that the IPCC’s attempt to wipe them both from the history books has been foiled by McIntyre and McKitrick – who should both get a Nobel Prize.
The IPCC had to re-write history because otherwise we would have been stuck with these routine and unremarkable regular changes in climate as recorded in the history books:
1) Medieval Warm Period (AD 700 - 1300)
2) Sporer’s Minimum' cool period (AD 1300 - 1500)
3) Brief climatic warming (AD 1500 - 1560)
4) Little Ice Age (Maunder Minimum) (AD 1560 - 1830)
5) Brief warmer period (AD 1830 - 1870)
6) Brief cool period (AD 1870 - 1910)
7) 20th century warm period (AD 1910 - 2000)
So, what’s new pussycats?
Stern makes many outrageous claims and his critics are suitably outraged. Lay readers must “choose their expert”. It takes no special expertise, however, to identify internal inconsistencies – and the Stern report is full of them. For example, he reports on two parallel universes. In one universe, developing nations have all become as wealthy as the United States and hence generate sufficient emissions to justify Stern’s adopting the most extreme warming scenarios. In his second, but co-existing parallel universe, global warming “increases gender inequality” because women have to spend more time carrying water from the well, and working in the fields – just like all those rich American women do every day.
I am not making this up.
How Smart Are We?
A popular, or populist, line of thought argues that because we New Zealanders are smart and pragmatic we should sign up to Stern’s “climate catastrophe panic” and make fistfuls of money developing carbon-neutral technologies which will satisfy the regulators, tax grabbers, and toll collectors.
That’s the Enron Gambit.
The other argument is, that because we are smart and pragmatic, we of all people, should be able to see through all the twaddle and gear up to supply efficient, value added, non-polluting goods and services to our Pacific Rim trading partners who believe in sound science and refuse to embrace climate catastrophe hysteria.
There are lots of them and their economies are growing fast.
So who do we join – The Pacific Rim Engine of Progress or the European Ship of Fools?

Tipping Point
Seeing the response to Stern not only on the net but also in newspaper letters pages & even articles in the less fundamentalist parts of the press here in the UK I suspect that the degree to which Stern has been oversold may mark the tipping point where scepticism became accepted.

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