According the leading economist Lord Stern current models evaluating the cost of climate change fail to account for permafrost melt or war and wrongly assume stable growth amid global warming.
Lord Stern of Brentford says by assuming standard growth models and failing to take account of risks such as permafrost melt and the cost of mass migration many economists are grossly underestimating the future costs of climate change.
That is the stark warning of the former World Bank chief economist and author of the 2006 report that warned that climate change was the biggest market failure the world has ever seen.
In a paper published this week in the Journal of Economic Literature, Lord Stern calls for economists to develop a new kind of modelling that focuses more on the potential impacts of climate change on people’s lives, including large-scale migration and conflict.
British environmental news website BusinessGreen reports in 2009, a United States government-backed group used current economic climate modelling and found the social cost of carbon was US$21 a tonne of carbon dioxide (tCO2).
This figure was designed to be used in impact assessments for US government policies, and was later revised up to $35/tCO2.
However, Lord Stern warns that the economic models on which it, and other reports are based, assume underlying drivers of growth will continue.
He maintains this would not be possible if global temperatures crept up passed two degrees Celsius during the next 100 years.
“If you think of a world where its three degrees Celsius or four degrees Celsius warmer, or more, you’ll have transformed the way people live and produce, lots of people would have moved, you’d have conflict,” he told BusinessGreen.
“The idea that you’ve got a simple growth story well captured by the kinds of things we’ve got now would not be credible, and the scale of losses would not be credible.”
Lord Stern added that scientific models, and therefore economic models, also fail to take account of all the risks of climate change.
This included methane emissions released from the thawing of permafrost, the collapse of land-based polar ice sheets, and the release of sea-bed methane.
The scientists could also be underestimating other risks, such as ocean acidification and the collapse of the Amazon and other tropical forests, he said.
“These models have far too small damage functions when you go beyond two degrees Celsius or so,” Lord Stern added.
Instead, Lord Stern said economists should start considering the damages to social, business and environmental capital; damage to stocks of capital or land, damage to overall productivity and damage to education from climate change.
“What we need is a new generation of models that think more carefully about how growth would take place in these kinds of circumstances.”
Lord Stern was speaking as a major new research project was launched in New York, which effectively aims to update his 2006 review of the economics of climate change.
The report is being compiled by a group of experts from the UK, Sweden, Norway, Korea, Indonesia, Columbia and Ethiopia, dubbed the Global Commission on the Economy and Climate.
It is due to publish its findings in a year, and has US$9m funding from the member countries, particularly Norway, Sweden and Britain.
Lord Stern said the study would examine the issue of climate with the perspective of economic policy and business investment decisions, in current economic conditions.
“The question it will examine is: how can governments, cities, businesses and investors achieve their own economic goals, such as growth, jobs, poverty reduction, profits, energy supply, or food supply, while also achieving emission reductions,” he said.
However, Lord Stern said the new report due tomorrow from the United Nations Intergovernmental Panel on Climate Change (IPCC) should spur countries to increase the scale and urgency of their emissions reductions.
Specifically, he called on the European Union to set a 2030 target to halve carbon emissions, compared to a 1990 baseline.
