Stern report previewed

by John Q on October 29, 2006

With the major issues in the scientific debate over climate change having been resolved, attention has now turned to the economics of stabilising the climate and to the costs of doing nothing. Following the House of Lords economic committee inquiry last year, which spent most of its time promoting denialist attacks on climate science, and had little of value to say on the economic issues, the UK government commissioned Sir Nicholas Stern, former chief economist of the World Bank to look at the issue properly.

His report is about to be issued in the UK today, and previews have given the major conclusion – it’s much more costly to do nothing than to do something. According to the reports, the estimated cost of stabilising CO2 emissions is 1 per cent of GDP by 2050. This is at the low end of the range of estimates I’ve obtained from back-of-the-envelope exercises.

The striking feature of the reported findings relates to the potential costs of doing nothing, from 5 per cent to 20 per cent of GDP. I assume the latter estimate is based on worst-case scenarios, which have relatively low probability but are nonetheless important in working out an expected cost of doing nothing.

The credibility of the report has been enhanced by the first critical responses noted in the press. One is from Exxon shill Steven Milloy, who repeats the discredited attacks on climate science he’s been pushing for years, with a few new variations. He even drags out cosmic rays. The Guardian mentions his affiliation with the Cato Institute, apparently unaware that they dumped him a year ago over his unethical behavior.

Even more interesting is the reference to “a group of nine rightwing economists”, including the former chancellor Nigel Lawson, who criticised Stern’s discussion papers in January. What’s not noted here is that it was Lawson who launched the House of Lords exercise, rigged the process to ensure that most of the witnesses were denialists and drafted the carefully ambiguous discussion of the scientific issues which, on the one hand, correctly disclaimed any relevant expertise on the part of the committee, and on the other hand, dishonestly promoted the denialist view that the debate is still wide open. Now that this exercise has turned out to be a massive own goal for Lawson and his allies, they are naturally upset.

More tomorrow (or maybe later today) when the report is released. In the meantime, responses to Stern’s earlier discussion paper, including mine, are here



Chris Bertram 10.30.06 at 5:08 am

I’m rather shocked to see that John Broome’s _Counting the Cost of Global Warming_ was first published in 1992. It was the first attempt by an economist (that I’m aware of) to make the economic case and doesn’t (unlike the Stern report as reported in the media – it may be more subtle for all I know) suggest that the only effect _that counts as an economic effect_ is a change in the growth of GDP.

It is depressing that whereas when one is engaged in methodological discussion with economists they are always (and rightly) concerned to emphasise that the things we care about (and that can be incorporated into utility functions) go way beyond a concern with the cash outcome, any public discussion of the “economic effects” of anything is limited to just that.

Even if growth rates were entirely unaffected by global warming, the massive destruction of habitats and the desertification of large areas of the planet would be an outcome that most people would massively disprefer … yet that massive dispreferment wouldn’t make it into the public discourse as an “economic effect” properly speaking.


Tim Worstall 10.30.06 at 5:28 am

‘According to the reports, the estimated cost of stabilising CO2 emissions is 1 per cent of GDP by 2050.’

That’s not how I’ve seen it reported (but then we know that such distinctions will escape most reporters).

Rather, 1 % of GDP per year until 2050. As the direct cost, without adding whatever slow down in GDP growth the actions might cause.

Anyway, the full report is supposedly out in 30 minutes but the web site appears to be down at present.


stostosto 10.30.06 at 5:38 am

>Even if growth rates were entirely unaffected by global warming, the massive destruction of habitats and the desertification of large areas of the planet would be an outcome that most people would massively disprefer … yet that massive dispreferment wouldn’t make it into the public discourse as an “economic effect” properly speaking.

Why would it have to be? Economically speaking, the environment, including biodiversity etc., is a good like any other. As such it enters people’s utility functions. The problem is it’s a public good, so you can’t express how much you value it by your demand behaviour in the market place. Therefore, as any economics text book has it, it’s a legitimate issue for public regulation. And therefore the public debate is about influencing politicians and the public’s preferences.

This doesn’t make analysing or modelling costs and benefits in terms of GDP any less interesting. Gaining knowledge of what policy alternatives yield in terms of better environment and cost in terms of any GDP forgone is evidently useful.

If we could boil the argument down to one of how much GDP would we be willing to sacrifice in order to save the Bangladeshi coast line, or the black rhino, then, while we would surely haggle endlessly about that, it would be like any other policy area. But now we can’t even agree on how much Bangladeshi coast line or how many rhinos we would actually save, or lose, or what the cost is of any given policy proposal of doing so. (Come to think of it, such is the situation in most policy areas).

Nobody would dispute, though, that a clean and diverse environment is a valuable good.


Chris Bertram 10.30.06 at 6:19 am

stostosto: My point wasn’t to say that GDP isn’t a useful measure of something, it was to notice that reports like the Stern report get represented in the public discourse as being about the “economic effects” of global warming and that there is a tacit assumption there of a contrast between economic effects (serious, bottom line, measurable in dollars of output) and other “airy-fairy” effects (environomental loss etc).

When economists have their methodological hats on, they typically deny that economics should be construed as dealing in cash outcomes rather than, say, preference orderings of states of the world. And they are right to do so, insofar as it is a true that you can pack anything into a utility function. But the everyday rhetoric of economics — including as used by many economists — reverts to the cruder approach as somehow more “serious”. (Broome’s book was an important exception to this.)


bob mcmanus 10.30.06 at 6:23 am

“Rather, 1 % of GDP per year until 2050. As the direct cost, without adding whatever slow down in GDP growth the actions might cause”

So with some slow down offset by benefits, just guess at 2% of GDP per year. Which would put the US in recession right now. What, 100 billion dollars? That is assuming expenditures balanced around the globe, which isn’t correct, the developed nations will likely have to far outspend the underdeveloped nations. So take it up to 3% minimum of US GDP. Per year, for fifty years.

Ready for your revolution?


Peter Clay 10.30.06 at 6:44 am

3% minimum of US GDP. Per year, for fifty years.

How does this compare to the cost of the invasion of Iraq?

Personally I think the way forward is to innovate in terms of useful boondoggles: at the moment government members round the world are keen to divert funds to their own constituencies in the form of military bases, bridges to nowhere, oil projects, etc. If there were equivalents with positive environmental externalities, they would very readily be funded.


stostosto 10.30.06 at 6:48 am


a tacit assumption there of a contrast between economic effects (serious, bottom line, measurable in dollars of output) and other “airy-fairy” effects (environomental loss etc).

Yes, I know what you mean. At the same time there is a pronounced resistance on the part of environmenatlists to put any economic value at the environment — corresponding to a proposition that it is infinitely valuable, and that we must do anything to save all of it at any cost whatsoever. This position has the rhetorical advantage of letting you paint any other position as cold-hearted money fixation.


John Quiggin 10.30.06 at 6:52 am

Chris, as you say, economists don’t draw the kind of distinction between economic and non-economic costs that is commonly supposed. Certainly, habitat loss and desertification are a big part of the cost.

Expressing this in monetary terms is difficult, but one way of doing it is to look at how much we’re already forgoing in consumption to protect the environment, then observing that much of this will turn out to have been wasted if we don’t do something about climate change.


bob mcmanus 10.30.06 at 8:39 am

Tyler Cowen …on global warming, one of the more honest assessments of the politics that I have seen. Much is implied, rather than directly stated. The politics of this is apocalyptic. The third world is not going to drown, burn, and starve meekly and peacefully.

Watched a decent movie this weekend, Secuestro Express which ended with a line about the third world:”You have two choices. You either kill them, or invite them to dinner.”

I ask myself, would I rather give up 10% of what I have to kill them, or 50% of everything I have to save them?


Tim Worstall 10.30.06 at 8:57 am

Having actually read a few chapters of the report I’m very disappointed. They are basing their modelling on scenario A2….and then adding greater climate feedbacks for their second modelling attempt.

As there are other SRES scenarios that produce vastly greater GDP per capita figures than A2, I find the whole thing rather off.

Why base a calculation of trade offs between mitigation and business as usual on the scenario that produces the least future GDP per capita, is a medium high emissions scenario and has a vastly (to my mind) over inflated population level of 15 billion?


not max power 10.30.06 at 10:40 am

There seems to be a consensus amongst the posters here that doing something about climate change will inevitably sacrifice GDP growth but I’m not sure this is correct. The energy efficiency gains made through upgrading appliances, light bulbs, insulation etc surely adds to GDP at least in the long run, and the R&D and employment benefits of developing new forms of power generation must also count as a contribution to GDP, at least partially offsetting the costs.


lemuel pitkin 10.30.06 at 10:55 am

Agree with not max. The statement “the cost of stabilizing cliamte emissions will be 1% of GDP per year” is NOT the same as “stabilizing climate emissions will result in GDP growth being 1% lower per year.”


david 10.30.06 at 10:56 am

Frank Ackerman, in Priceless, is pretty good on the serious problems with using foregone consumption as a pricing mechanism for the environment. The price may be ultimately unmeasurable, but as it stands, we certainly don’t have a decent way to measure it.


Aaron_M 10.30.06 at 11:09 am

not max power

What are you claiming? Do you expect the positive economic effects of addressing climate change to out weigh the negative ones? Are the positive gains over the short term or the long term? What counts as short term and what counts as long term?

It seems to me that we have invested huge amounts into building economic systems based on the burning of fossil fuels. Implementing a new model will cost us both the capital investment to create non-polluting energy sources on a massive scale and the forgone economic benefit of using the energy system we have already invested in to accrue economic benefits from the burning of the world’s remaining viable fossil fuel reserves.

The point of the Stern report is that climate change is going to cost a lot more to future generations (i.e. humanity over the long run) than near and long run investments in abatement. But any investment we make now will not result in a benefit to us in terms of reduced climate change effects. The climate effects we will feel in our lifetimes have already been determined by past burning and the burning we will have to continue to do even if we make a full on effort for new energy sources. And any benefits we will receive in our lifetime from a full on reformation of our energy systems will surely be outweighed by the costs of creating a completely new system and loss from abstaining from using fossil fuels.

This does not mean that I do not think we should make radical changes, but I am a bit tired of all the win win comments about addressing climate change.


Jim Harrison 10.30.06 at 12:05 pm

Economic collapse is a way to fight global warming: if Eastern Europe had not gone into a tailspin with the fall of the USSR, the level of greenhouse gases would be much greater today and so, presumably, would be global temperatures.


MQ 10.30.06 at 3:02 pm

The paper says that if emissions are unchecked, global climate change will reduce living standards by a minimum of 5% of pre-capita consumption, perhaps as much as 20% at the outside. Say the reduction is 10% of per capita consumption. Isn’t that just 3-4 years of average global growth? So that if we do nothing, living standards in 2100 will be what they would have been in 2096-97 without global warming? In the grand scheme of things, is this particularly serious? Is it just that economic costs do not sum up what is going on here very well? Or what am I missing here?


soru 10.30.06 at 5:24 pm

In the grand scheme of things, is this particularly serious?

To quote Duran Duran, it’s about as serious as a nuclear war.

It’s true that, on the assumptions and timescale they are using, it is more of a WWII-level problem, a limited nuclear exchange that destroyed 10% of the world’s cities, than a global-apocalypse, everyone dies, thing.

As such, it is something that will slow progress down, not, in itself, bring on a new dark age, cause future historians to write ‘western civilisation came to an end in the date they called 2074 AD’.

Two caveats:

they could be wrong, either the environmental effects, or the secondary political consequences, could be much worse.

a longer timescale may well show more radical effects, if the problem is not solved in the next century.


Michael Sullivan 10.31.06 at 4:09 pm

I don’t think it’s anything like a limited nuclear exchange because of the huge amount of time (in human terms) that is involved. Bangladeshis are not going to sit on the delta while the seas rise 3-10mm /year until they get covered over. Over the course of generations, it’s likely that people can peacefully move away from affected areas at relatively low cost. Rising sea level becomes a catastrophe only if they remain very poor for another 100 years, *and* no wealthy countries/philanthopists deem it appropriate to donate resources either to stop warming, protect the area, or relocate the affected.

It’s certainly *possible* that there could be unexpected ecological consequences that are more severe than anyone realizes, but that could be true of any number of other things happening that have nothing to do with global warming. In general, it’s best to err on the side of caution, I think.

What’s clear right now, reading the Stein Report is that our CO2 is warming the earth, and that we have to plan for a minimum 3-4C rise in global temperatures and a 1-2m sea level rise over the next 100-200 years. It’s also clear that further CO2 emissions can make the problem even worse and we should take any low or no cost measures necessary to reduce those emission.

Whether we should adopt more severe restrictions at heavy cost is another question, and I think the jury is still out. 1% of GDP per year adds up to a *lot* of resources in 100 years. Which means we can afford to bank up a *lot* of remediation capital if we don’t make any high cost changes to our current activities.

I have zero patience for the people who’ve been blowing smoke and putting out a bunch of nonsense over the last 20 years while the scientific community has been coming to a better consensus. But the question of whether it’s costlier to reduce emissions now, versus remediate later is a legitimate one and shouldn’t be ignored.

1% of GDP doesn’t sound like much, but for a bangladeshi it’s the difference between maintaining the current level of poverty and being 2.7 times better off in 100 years. That’s a gigantic cost, and it’s the reason I don’t expect any country not already rich to be down with any costly emission reduction programs. It’s a huge tragedy of the commons problem, and only about 1/5 of the world is wealthy enough that it makes any rational sense to worry about it.

The primary goal, it seems to me, is to get the whole world to a place where giving up 1% of GDP for 100 years isn’t the difference between starvation and comfort.

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