Britain’s Costliest Mistake? Lord Stern Defends His Climate Maths

  • Date: 01/01/14
  • Andrew Orlowski, The Register

The result of the Stern Review was quite possibly the most expensive legislation ever passed by Parliament.

As the year winds to a close and a new one begins, it’s traditional to think about the future and good resolutions we may be keeping. In particular, we thought it would make sense to take a look at the resolution the UK made a few years ago: to cut carbon emissions on a scale unmatched by any other nation. How’s that going, and what will it mean in years to come?

In other words – how much will the struggle against global warming cost the UK? A little? A lot? Will the “cure” hurt us more than the disease? Five years on from the passage of the 2008 Climate Change Act, few people understand the maths behind such calculations.

One of the people responsible for the Act, economist Lord Stern, was recently called upon by Parliament to defend his calculations. In 2007 Stern – then plain Nick Stern – delivered the Stern Review, a massive economic assessment that helped convince MPs that climate mitigation measures would be well worth the cost. Cutting carbon dioxide emissions would cost of just one per cent of GDP, Stern argued, but we’d pocket between five times to 20 times the benefit. Put this way, carbon dioxide reduction was a great investment. A no-brainer.

The result was quite possibly the most expensive legislation ever passed by Parliament.

However, it subsequently emerged that Stern’s maths was very iffy indeed. The economist most cited in Stern’s Review, Professor Richard Tol, an IPCC veteran, was one of its severest critics. In “A Review of the Stern Review” Tol and economics professor Gary W Yohe described how Stern had made a catalogue of errors: including unjustifiable assumptions and double-counting the benefits. Stern’s cost figure was far lower than any other economist. Stern’s figure for the benefits of urgent CO2 limitation were far higher than any other economist, too. Tol wasn’t against making urgent climate policies – but he said that Stern had performed such “substandard analysis” that his calculations had caused great damage to the argument for carbon reduction. Errors that might have been caught by peer review – as a UK government-commissioned work, Stern’s review was not reviewed by his peers – remained.

Stern made many controversial assumptions. His cost-benefit ratios ranged from 0.09 to infinity. The vulnerability to damage didn’t change over 200 years, in Stern’s predictions. Farmers would not switch crops if the strain they used became less productive. But perhaps the most questionable was his handling of “discount rates” – the formula used to measure future cost and benefits. Since future generations will be richer, then theoretically it’s cheaper for them, in the future, to take action such as switching to a relatively more expensive fuel, rather than making our grannies suffer fuel poverty today.

“Why should we sacrifice 10 per cent of our income today to make Bill Gates better off?” is how one of Stern’s critics, MP Peter Lilley, expressed this proposition.

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