Stern warns economic models underestimating climate risks

Stern warns economic models underestimating climate risks


Leading international climate change expert Lord Nicholas Stern has warned the economic models currently used to calculate the risks and costs associated with climate change adaptation and mitigation are “grossly misleading”.

Writing in an article published in the journal Nature, the Grantham Institute chair and former United Kingdom Treasury advisor urged researchers to help policymakers by better modelling both the risks climate change presents to future generations and the vast potential of clean technologies.

green-energy-industry“Current economic models tend to underestimate seriously both the potential impacts of dangerous climate change and the wider benefits of a transition to low carbon growth,” he wrote.

“There is an urgent need for a new generation of models that give a more accurate picture.”

Lord Stern pointed to the failure of the commonly used integrated assessment models (IAMs) to incorporate hard-to-predict catastrophic changes and potential tipping points, such as the thawing of permafrost and subsequent release of methane.

In addition, many of the largest potential climate impacts were usually omitted from economic models, Lord Stern warned, citing the failure to acknowledge the risk of conflicts caused by mass migration that could result from climate impacts.

greenhouse-gas-emissionsIAMs also have major failings in the way they are used to estimate the costs of mitigation efforts, Lord Stern said, arguing they fail to reveal to policymakers how economic growth could be jeopardised if no action is taken to curb emissions.

“The business-as-usual baseline, against which costs of action are measured, conveys a profoundly misleading message to policymakers that there is an alternative option in which fossil fuels are consumed in ever greater quantities without any negative consequences to growth itself,” he wrote.

lord-nicholas-stern-british-economistLord Stern added that such models also failed to show how investment needed to begin the transition to a low-carbon pathway could lead to wider economic benefits that go well beyond avoided climate risks, such as improved health or lower levels of air pollution.

The most recent assessment report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) also understated the limitations of the economic modelling work done to date, Lord Stern said.

sustainable-solar-water-housingAs a result the benefits which would come from a move to a more sustainable society, as well as the risks of failure to do so, were vastly underestimated.

“Essentially, it reported on a body of literature that had systematically and grossly underestimated the risks of unmanaged climate change,” Lord Stern warned.

He also strongly criticised flawed estimates of the social costs of carbon, which are used by policymakers in cost-benefit analyses to decide on whether mitigation policies are cost effective.

drought-climate-changeLord Stern said such estimates are highly uncertain, often involve a downward bias, and fail to include damages to human well being that are inherently difficult to define in economic terms.

“Most current models of climate change impacts make two flawed assumptions: that people will be much wealthier in the future and that lives in the future are less important than lives now,” he said.