Critiquing The Stern Review

I know I should probably wait another year and do it at the ten year mark, but I’ve got to scratch that itch.

“The Stern Review on the Economics of Climate Change is a 700-page report released for the British government on 30 October 2006 by economist Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and also chair of the Centre for Climate Change Economics and Policy (CCCEP) at Leeds University and LSE. The report discusses the effect of global warming on the world economy. Although not the first economic report on climate change, it is significant as the largest and most widely known and discussed report of its kind”

The report itself can be found here, broken into bite-sized chunks.

Stern wrote, “The scientific evidence is now overwhelming: climate change presents very serious global risks, and it demands an urgent global response…The benefits of strong, early action considerably outweigh the costs.”

My previous argument against Stern’s conclusions are based on his use of an IPCC scenario that had population estimates at 15 billion by the end of the century. This is a bit below the UN’s new high variant prediction of 16.6 billion, but far higher than their (recently adjusted upward) medium variant of 10 billion.

But there are other things I disagree with in the report (it’s 700 pages long, so that’s pretty much natural). For example, Stern found that under business as usual (i.e., assuming no new policies to reduce carbon emissions), the concentration of greenhouse gases in the atmosphere could reach double the pre-industrial level as early as 2035.  That is not supported by evidence available to Stern then or the data we can look at now.

In fact, Stern said in his review that CO2 concentrations in 2006 were 430 ppm. At that time they were 381.9 ppm. “The current level or stock of greenhouse gases in the atmosphere is equivalent to around 430 parts per million (ppm) CO2 1 , compared with only 280ppm before the Industrial Revolution. ”

Pre-industrial concentrations are commonly held as 280 ppm. They are now about 400 ppm. The IPCC actually projects as a high range concentration by 2035 a level of 450 ppm. This is dramatically lower than the 560 ppm used by Stern.

Stern also wrote that by the end of the century, business as usual would lead to more than a 50% chance of exceeding 5 C of warming, implying disastrous changes in natural ecosystems and human living conditions around the world.

Stern Review

In the IPCC AR4, published almost at the same time as Stern’s review, they gave different temperature rises for the end of the century for six different scenarios. Only two of those scenarios–A2 and A1F1–have temperatures rising to that level. The others range from 1.1 to 4.4C in temp rises.

The economic model used in the Stern Review finds that the damages from business as usual would be expected to reduce GDP by 5%. This is higher than most economists estimate.

In fact, most of the published criticisms raised are actually by economists.

“The extensive criticisms of the Stern Review’s economics raise three principal points:

• the discount rate is said to be too low;

• the treatment of risk and uncertainty is inappropriate; and

• the calculation and comparison of costs and benefits is done incorrectly.

“Stern’s preferred discount rate, 1.4%  is much lower than the rates used in traditional climate economic models. For William Nordhaus, “the Review’s radical revision arises because of an extreme assumption about discounting…this magnifies enormously impacts in the distant future and rationalizes deep cuts in emissions, and indeed in all consumption, today.” Nordhaus maintains that the discount rate should initially match an interest rate of about 5% above inflation.

The second major innovation in the Stern analysis is the treatment of risk and uncertainty connected to climate change. The  IPCC’s Third Assessment Report (2001) assumed that a doubling of pre-industrial CO2 concentrations would lead to warming of 1.5o – 4.5o, a range the IPCC went back to in AR5. Stern’s high climate sensitivity scenario assumes that the same doubling of atmospheric CO2 would lead to 2.4o – 5.4o.

Second, the PAGE model, used in the Stern Review, includes an estimate for the risk of an abrupt climate catastrophe, something most economic models do not use. There are three commonly accepted methods of modeling uncertainty. Each of these three methods of modeling uncertainty has an important influence on the results. Sensitivity analyses by the Stern team show that “the estimated cost of “business as usual” climate damages would be increased by 3.6 percentage points (i.e., 3.6% of global consumption) by the high climate sensitivity assumptions. Similarly, removal of the calculation of catastrophic risks would reduce estimated damages by 2.9 percentage points. Elimination of the Monte Carlo analysis, doing one run of PAGE using the most common value for each parameter (such as 1.3 for γ), would reduce damage estimates by 7.6 percentage points.24 In short, Stern’s treatment of uncertainty is comparable in importance to the discount rate in determining the outcome of the model.”

In addition to criticisms of the discount rate and the treatment of uncertainty, economists have also criticized Stern’s estimates of the expected damages from climate change, the costs of mitigating those damages, and the comparison of damages and mitigation costs.

Richard Tol and Gary Yohe believe that Stern has exaggerated throughout: “The Stern Review consistently selects the most pessimistic study in the literature for water, agriculture, health, and insurance.”

Robert Mendelsohn adds the claim that Stern has overstated the effects, or the certainty, of extreme weather events, and has downplayed the likely extent of adaptation to a changing climate. In general, Mendelsohn believes the damages from the early stages of warming to be quite small: “…there are hardly any damages associated with a 2 C increase in temperature.”

Stern wrote that temperatures would rise 2-3C within 50 years. Nine years later temperatures haven’t raised much at all. It would take a heroic rise to meet his projection.

Stern writes, “According to one estimate, by the middle of the century, 200 million people may become permanently displaced due to rising sea levels, heavier floods, and more intense droughts.” According to the UN in 2014 there were 15 million refugees who had left their country and 27 million who were displaced internally. Almost all of that was due to conflict. Most environmental refugees flee storms, floods or droughts and return to rebuild their homes when conditions improve. Storms, foods and droughts do not appear to be increasing in either number or intensity. Again, the next 40 years will have to be terrible indeed for Stern’s prediction to come true.

Stern writes, “Based on simple extrapolations, costs of extreme weather alone could reach 0.5 – 1% of world GDP per annum by the middle of the century, and will keep rising if the world continues to warm. ” Again, as none of this has even started yet, if Stern is right we’d better batten down the hatches to survive the next 40 years.

I’ll have to leave it there for today. Posts really shouldn’t be this long. Feel free to continue support or criticism of the Stern Review in the comments.

I can see how Stern can use inflated numbers to get to a scary total. What I can’t see is why it is still being used as a policy guide today.



11 responses to “Critiquing The Stern Review

  1. ==> ““…there are hardly any damages associated with a 2o C increase in temperature.””

    I’m wondering if there’s a decimal point wandering around the blogosphere looking for its home?

  2. No, but my motivated reasoning leads me to surmise that the degree symbol is hard to get into a blog post. But I’ll work on it.

  3. Tom:
    The phrasing ““The current level or stock of greenhouse gases in the atmosphere is equivalent to around 430 parts per million (ppm) CO2” is a tip-off that Stern is considering more than CO2. The amounts of other greenhouse gases (e.g. methane, N2O, CFCs) are converted to an equivalent amount of CO2, typically on the basis of forcing.

    [The above should not be construed as disagreement with your conclusions about the Stern report, by the way. Just correcting a detail.]

      • After doing some digging into the references for this, I think you’re both right. Stern was certainly referencing the CO2e number for 2006, but the sources he references give the 280ppm in 1750 as *only* for CO2, not including other greenhouse gases. So the comparison is apples to oranges.

        Probably an honest error, but it is a curiosity that so many of these errors tend to magnify the perceived problem.

      • kch — if the other gases’ effect is converted to equivalent CO2 by comparing forcing, and the forcing is computed relative to the pre-industrial concentration, then it’s not apples to oranges. [Although there’s a certain amount of comparing different apples — Gala to Fuji to Granny Smith — intrinsic to the method.]

        For example, let’s take the RCP forcing scenarios, based on historical information through 2005. They show the total anthropogenic forcing as 0 Wm-2 in 1765, and that of CO2 as well. In 2005, CO2 forcing is reckoned at 1.68 Wm-2. The formula RF=3.71 Wm-2*log2(pC02/280 ppm), implies a pC02 of 383 ppm, so they’re using something like that.

        Using the RCP’s “all GHGs” figures, in 2005, GHG RF was 2.65 Wm-2, equivalent to pC02e=460 ppm. For RCP8.5, by 2030, RF is up to 3.80 Wm-2, or pC02e=570 ppm. That’s in the same ballpark as Stern’s “double the pre-industrial level” as early as 2035. Stern was likely using AR4’s A1B or A1FI scenario rather than RCP8.5, but this seems to be the approach.

        [Using the RCP’s “total anthropogenic forcing”, one gets somewhat lower figures, but even so, again using RCP8.5, by 2040, RF is up to 3.83 Wm-2, or pC02e=572 ppm. It seemed more likely to me that Stern’s statement referred to the GHG forcing alone, not including other anthropogenic effects.]

      • HaroldW – I won’t dispute that that is possibly the method that was used (and is probably the best method for this kind of analysis). [That said, I got a different impression of the methodology from the relevant section of the Review. But I’ve been wrong before…]

        I’m also not disputing their numbers, just pointing out that in the section of the SPM that Tom quotes the 280ppm refers to CO2 only (as taken from their own tables), not the CO2e that the 430ppm refers to. On that basis, it is apples to oranges (or maybe only pears), and it was on that basis that Tom went wrong.

        I think the difficulty here comes from the drive to simplify for the SPM that was the source of Tom’s quote. Rather than go through the whole method, the writer just put in the most easily comprehended numbers – and got sloppy with which numbers. No big deal, really, unless it becomes a source of more confusion – which apparently it can. 🙂

  4. These crazy estimates are so short-sighted. You have got to believe that Stern himself doesn’t really believe these numbers, I would be shocked if he really did (I’m sure he will state he does). It’s as if people believe these numbers will never be checked against observations. In a science area where long term credibility already suffers (environmental science), this just sets up more of the same.

    Then there is the “worst squared squared” affect. Take the worst case emissions scenario, multiply it by the worst case climate affects scenario (worst case extreme events, worst case sea level rise, etc.) , then multiply again by the worst case economics scenario with multiple worst case assumptions. What you end up with statistically is a vanishingly small chance of all these worst cases all coming to pass. Then the media gets a hold of it and drops any reference to worst case and represents it as a best estimate.

  5. Roger Pielke, Jr. has summarized his research on extreme weather events in the paperback published in November, 2014,

    The Rightful Place of Science: Disasters and Climate Change

    The claims by Obama, Kerry and others that extreme weather events are increasing are untrue.

  6. I think probably Stern did use a CO2e number in the summary without labeling it properly. But I doubt if it’s a correct number, even so.

  7. Pingback: In Praise of Judith Curry’s Week in Review–and the Social Cost of Carbon | The Lukewarmer's Way

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