Lord Stern: We’ve Underestimated Economic Costs of Global Warming

Thu, 2014-06-19 17:41Chris Rose
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Lord Stern: We’ve Underestimated Economic Costs of Global Warming

Nicholas Stern

Nicholas Stern, one of the world’s most influential economists, has come out with a new report showing that the future costs of climate change have been incredibly underestimated.

The report, Endogenous growth, convexity of damages and climate risk, indicates it is even more important than previously thought that politicians quickly and aggressively stop unchecked climate change caused by man-made carbon dioxide emissions.

Stern, a professor at the Grantham Institute at the London School of Economics, and his co-author Simon Dietz found that the current economic models used to calculate the cost of climate change are vastly inadequate and need to be updated so that proper decisions can be made about risks associated with global warming.

They said that even the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) has cited the existing economic models and, as a result, has arrived at severely limited assumptions about the costs of global warming.

It is extremely important to understand the severe limitations of standard economic models, such as those cited in the IPCC report, which have made assumptions that simply do not reflect current knowledge about climate change and its potential impacts on the economy,” Stern, a former chief economist with the World Bank, said in a media release.

I hope our paper will prompt other economists to strive for much better models which will help policy-makers and the public to recognize the immensity [of] the potential risks of unmanaged climate change. Models that assume that catastrophic damages are not possible fail to take account of the magnitude of the issues and the implications of the science.”

The media release said Monday that Stern and Dietz modified some key features of the ‘dynamic integrated climate-economy,’ or DICE, model, which was initially devised by William Nordhaus in the 1990s, to take into account the latest findings and some of the uncertainties about the major risks of climate change that are usually omitted.

The new model allows a wider range of values to be considered for climate sensitivity, which is the long-term change in global average temperature that would result from a doubling of the atmospheric concentration of carbon dioxide, the release says. 

The new model also includes a broader range of potential climate impacts, because the standard model tends to underestimate the potential economic damage that could be created by climate change, it added.

Dietz said the old economic model has been useful for economists who estimate the potential impacts of climate change but that the new model shows that some major improvements are needed before it can reflect the extent of the risks indicated by the science.

Our aim was to show how a new version of the model could produce a range of results that are much more representative of the science and economics of climate change, taking into account the uncertainties,” Dietz said.

The new version of this standard economic model, for instance, suggests that the risks from climate change are bigger than portrayed by previous economic models and therefore strengthens the case for strong cuts in emissions of greenhouse gases.”

Stern and Dietz said their research suggests a global carbon price should range from US $32 to $103/tCO2 by 2015 and rise to between $82 and $260/tCO2 by 2035.

They also found that that living standards could begin to decline later this century unless the growth in annual emissions of greenhouse gases from burning fossil fuels is checked. Their peer-reviewed paper is scheduled for publication in The Economic Journal.

Image Credit: Stern at the 2009 World Economic Forum via Flickr.

Previous Comments

Trying to place an economic or monetary value on climate change can be counter-productive.  How does anyone calculate the economic impact of water wars contesting access to the Himalayan headwaters, the Nile or the Tigris and Euphrates? 

Carbon pricing is a grand idea but it's a hard sell especially as the numbers escalate.

I'm all for massive emissions reductions but those targets will remain unattainable until emissions action is bundled with action on population control, over-consumption and equitable resource allocation.  Nothing short of a holistic approach to bring mankind into harmony with our environment stands much chance.

I recently came across a report by three Chinese experts delving into their country's grain security in the 21st century.  The premises they used I found disturbing.  They wrote of China's population reaching 1.5-billion by 2050 and China's per capita GDP soaring from $1800+ today to $16,000 by 2030.    Imagine the massive increase in economic activity necessary to achieve that sort of GDP growth, the resources, the energy inputs, the GHG emissions and other pollution.  At The Globalist web site I came across automobile production stats that stated the world produced 73-million automobiles in 2010, 83-million by 2014 and we're on track to hit 100-million by 2018, a third of which will be sold within China.

Much as I believe China truly wants to shift to alternative energy, how can they achieve economic growth at even a half or quarter of the predicted levels in such a short timeframe without maintaining or increasing their fossil fuel consumption?  Next up, Africa. 

 

“targets will remain unattainable until emissions action is bundled with action on population control, over-consumption and equitable resource allocation.”

That's a fine recipe for catastrophe.  Reducing our population will take a century.  Meanwhile, if we convert our energy system to 100% renewable, it matters little what our population or consumption level is - we will still be producing zero greenhouse gases.  And that is what is important.

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