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The power to tax is the power to destroy.

-John Marshall

Stern Language

I like Sir Nicholas Stern. He’s got a name that lends itself quite nicely to the type of cheap wordplay that is so popular with newspapers and blogs. It really doesn’t go beyond that – I was not at all familiar with the man until last week. The head of Britain's government economic service and the former World Bank chief economist, Stern recently published a report on the economics of climate change (some highlights here and some reactions here). It’s causing quite a stir.

The Economist:

Gordon Brown, the chancellor of the exchequer, asked Sir Nicholas to look into the economics of climate change because he wanted some solid material to counter the argument of those who accept that global warming is happening but believe mitigating it is too expensive to be worthwhile. That view is rare these days in Europe, but common in America, where it is often infused with the belief that attempts to control greenhouse-gas emissions are part of a European socialist conspiracy to undermine the American way of life.

Sir Nicholas has tried to assess the future costs of climate change—drought in Africa, floods in Europe, hurricanes in America, rising sea levels around the world—and has set them against the costs of cutting fossil-fuel usage enough to stabilise carbon-dioxide concentrations in the atmosphere. His answer to the second part of this calculation is fairly uncontroversial. The costs of switching away from carbon should not be huge because of the rise in fossil-fuel prices and the fall in alternative energy prices. Sir Nicholas reckons that the world could stabilise concentrations at a reasonable level at a cost of 1% of GDP by 2050. Many other economists have looked at the matter, and most agree with Sir Nicholas.

But Sir Nicholas dissents from the general view on the costs of climate change itself. Most economists who have looked at the matter up to now reckon that, if greenhouse-gas emissions continue on their current path, the costs of climate change would be between zero (where the benefits of warming to cold countries balances out the costs) and 3% of global output over the next 100 years. Sir Nicholas thinks they would be a massive 5-20% over the next century or two: in other words, world output could be up to a fifth lower, as a result of climate change, than it otherwise would have been.

…Sir Nicholas has received plenty of support from economists (four Nobel prize-winners have endorsed the report) and a certain amount of criticism…One complaint is that he has selected the most pessimistic research and ignored more conservative work… Another criticism is that figures on the economic costs of climate change are bound to be nonsense because they are based on a cascade of uncertainties.

But neither point invalidates Sir Nicholas's central perception—that governments should act not on the basis of the likeliest outcome from climate change but on the risk of something really catastrophic (such as the melting of Greenland's ice sheet, which would raise sea levels by six to seven metres). Just as people spend a small slice of their incomes on buying insurance on the off-chance that their house might burn down, and nations use a slice of taxpayers' money to pay for standing armies just in case a rival power might try to invade them, so the world should invest a small proportion of its resources in trying to avert the risk of boiling the planet

Is this a fair point?

Posted by Wulf on November 3, 2006 at 11:15 PM

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The power to tax is the power to destroy.

-John Marshall

Stern Language

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