Leaked U.N. report shows that Stern is wrong on climate economics

The British government has vastly underestimated the costs of its green agenda, which could turn out to be up to five times more expensive than ministers are predicting, according to a leaked United Nations (UN) report obtained by The Business. The action recommended by the British Stern Review - keeping greenhouse gas levels at 550 parts per million - would cost up to 5% of global gross domestic product (GDP), according to the UN. This is in stark contrast with the Stern review, which says it will probably cost only 1%. This much lower number is used by Stern to make the case for immediate action and steep taxes to cut back on the emission of greenhouse gases. But the UN estimate undermine Stern's economic rationale.

Stern also said the cost of not acting could be 5% to 20% of global GDP. If the Intergovernmental Panel on Climate Change figures are right, they open up the possibility that the British proposals would cost as much as they save, making them redundant. The new UN figures, exclusive to The Business, come from a draft copy of the 2007 review of the IPCC, which is the acknowledged global authority on climate change science. The Stern review itself was explicitly based on the IPCC's last report, which didn't calculate the cost of stabilising emissions.

Embarrassingly for the British government, the IPCC has done its own sums on restricting greenhouse gas emission to various levels and has found each of the targets far more expensive than the Stern review claimed.

The debate on what to do about global warming has focused on what target to set for greenhouse gas concentrations, now at 430 parts per million (ppm). On current economic trajectory, it is feared they could reach 700ppm by the end of the century.The Stern review directly links global warming scenarios to greenhouse gas concentration levels. At 550ppm, the studies quoted in the review claim the planet is likely to warm by 3øC. Stern considers this to be dangerous, but not catastrophic. The European Union has set a target of 450ppm but the Stern review said this is unlikely to be achieved because developing economies are growing so quickly. However, the 650ppm limit was shown by Stern as inviting catastrophic climate change.

So the review looks closely at the case for keeping emissions to 550ppm, which it underplays. Stern's executive summary states: "An upper bound for the expected annual cost of emissions consistent with a trajectory leading to stabilisation at 550ppm is likely to be 1% of GDP by 2050."

But the draft copy of the IPCC's Fourth Annual Review, due for publication next year, finds the cost of achieving the same goal to be between "1% and 5% loss of global GDP". The less-ambitious target of stabilising emissions at 650ppm would cost less than 2% of GDP.

The Stern review team would not comment on the draft report as it has not been published. But The Business understands that the leaks were made available to its scientists at the time of compilation.

Sir Nicholas Stern, a former World Bank economist now working for the British Treasury, has admitted from the offset that his report could only work if it was agreed on a global basis. Ministers are to travel to India and America to promote his findings.But being contradicted by IPCC research hardly helps Britain's case, since the IPCC figures are the only ones used to frame the global debate. The leaked UN draft is circulating on the internet and will serve to undermine Stern's authority.

Though the Stern review was received to universal acclaim in London, it has been attacked in other parts of the world for being alarmist and, in some cases, incompetent. His nightmare scenario - global warming costing between 5% to 20% of GDP - was achieved by using an unusually low discount rate in his calculations. This is a standard device to justify investments with a long-term payoff.

The 11-member Organisation of Petroleum Exporting Countries (Opec) has already given the Stern Review a cold reception. Mohammed Barkindo, Secretary-General of Opec, attacked the report at an energy conference in Moscow."We find some of the so-called initiatives of the rich industrialised countries, who are supposed to take the lead in combating climate change, rather alarming," he said. Adaptation to climate change, he added, cannot be conducted by "scenarios that have no foundations in either science or economics (referring to the Stern report's publication)".

In Washington, the Competitive Enterprise Institute (CEI) said the Stern review would have no traction internationally as its economic mistakes would be instantly recognised by experts in the field. "Stern's costs are actually more expensive than doing nothing about climate change itself," said Iain Murray, senior fellow at CEI specialising in climate change. "This is 'Chicken Little' stuff," said Murray, "except Chicken Little wasn't trying to scare the public in order to create Enron-style con games and line the pockets of Wall Street bankers at the expense of consumers."

This opprobrium sharply contrasts with the Stern review's reception in London, where his conclusions were welcomed by business and accepted by all mainstream British political parties.



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