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LILLEY Peter

Peter Lilley is a former Secretary of State for Trade & Industy and for Social Security, and is MP for Hitchin & Harpenden.

The Stern Review, published ten years ago, is still cited by government to justify their costly climate policies. Yet it is a work of advocacy whose credibility has subsequently been seriously challenged. Though to listen to the BBC’s sycophantic interview celebrating this anniversary you would not realise that.

When it was published I was chairing the Global Poverty Commission. So I turned straight to the section about global warming and developing countries. My eye fell on a reference to a study showing that a 40° Celsius rise could cut yields of one crop variety by 70 per cent. I recognised that study which also shows that another variety of the crop showed increased yields at these temperatures. The Review did not mention this. That and similar examples of ‘suppressio veri’ sowed seeds of doubt in my mind about the Review’s objectivity.

Two years later came the Climate Change Act. The Government’s Impact Assessment was unprecedented. It showed that the potential costs were twice the maximum benefit (in reducing damage across the world caused by global warming). This – not any scepticism about the science of global warming – prompted five of us to vote against the Bill. The Impact Assessment flatly contradicted the Stern Review which claimed that the cost of preventing undue global warming would be a fraction of the benefits. But this was ignored as Parliament enacted the Bill without once considering its enormous cost.

When I finally studied the Review in depth I realised that:

  • It was not independent. It was commissioned by the Chancellor of the Exchequer and carried out by a team of Treasury officials led by the Treasury Chief Economist, Sir Nicholas Stern.
  • It was not a Review. Far from reviewing the evidence or producing new research, Stern reached conclusions way outside the previous economic consensus including the UN Inter-governmental Panel on Climate Change (IPCC) on whose scientific projections Stern’s projections were based. Whereas Stern said the benefits of reducing emissions would be five to 20 times the cost, the IPCC concluded: “analyses of the cost and benefits of mitigation indicate that these are broadly comparable in magnitude.”
  • It was not an exercise in evidence-based policy-making but the most egregious example of policy-based evidence making. The Review selected facts and devised methods to justify a pre-ordained policy – that the world should prevent CO2 in the atmosphere exceeding 550 parts per million. That happened to be the target to which the UK Government was already committed (a fact never mentioned in the Report).
  • To justify the costly measures that target requires, Stern had to set aside the discounting rules prescribed by the Government Economic Service of which he was head and adopt a controversially near-zero rate for discounting over time the benefits of mitigating global warming centuries into the future. But he discounted the opportunity cost of investment to mitigate global warming at the higher market rate.

When other environmental economists were able to study its rationale the Review came in for some heavy criticism, particularly for his use of ultra low interest rates but also other questionable devices.

For example, it emerged that Stern was not comparing like with like. He compared the cost of stopping some future greenhouse gases emissions (those that would take the level in the atmosphere above his 550ppm ceiling) with the damage caused by all human greenhouse gas emissions past and future (including those up to 550ppm which his policy would not prevent). This is inexcusable.

It also emerged that in the Review’s headline conclusion that “If we don’t act the overall costs of climate change will be equivalent to losing at least five per cent of global GDP each year now and forever” his phrase “now and forever” was highly misleading. His five per cent figure is the result of averaging the negligible damage projected this century with the large losses he predicts centuries ahead to infinity! In fact, even on Stern’s worst scenario, the cumulative loss of GDP he projects will not exceed one per cent of GDP (his estimate of how much his programme to limit global warming will cost) until sometime in the next century.

Since a critical mauling from some fellow economists, Stern has refused public debate with critics. Instead, he employs a full time ‘attack dog’ – Bob Ward – tasked with launching ad hominem attacks against his master’s critics.

Stern nonetheless took some criticisms to heart and discretely changed his position on key issues. He blithely adopted a new methodology, a higher discount rate – reducing his projected five per cent GDP loss to 1.4 per cent, a tougher target – doubling the cost of mitigation, a scarier scenario involving mass migration worthy of UKIP, and health risks unrelated to climate change. However, he continues to ignore alternative policies and greater reliance on adaptation.

I find particularly depressing how the policies Stern advocates impact on poor people.

Poor countries are more vulnerable to climate change because they are poor. The cure for poverty requires harnessing energy. The cheapest energy is usually from fossil fuels. Discouraging poor countries from using fossil fuels will prolong their poverty.

On Stern’s Business As Usual scenario, developing countries account for the bulk of emissions growth as they catch up with developed nations. So Stern’s crash programme to limit emissions would involve major restraint by them even if developed countries decarbonise totally. 
Requiring poor countries to use renewables, which cost over twice as much as fossil fuels, means they could afford less than half as much energy. That means remaining poor for longer and consequently vulnerable to climate change (and worse natural hazards) for longer. And they would remain hungry longer. The Stern admits the bio-fuel target will require ten per cent of the world’s arable land – raising food prices by more than the yield loss from a 4° Celsius temperature rise.

Yet even in Stern’s worst case, people in developing countries are still expected to have average levels of well-being six times their current incomes by 2100 and 20 times by 2200. Higher incomes generated by harnessing energy from fossil fuels far outweigh the costs to them of the resultant global warming.

In short, he wants to sacrifice the wellbeing of poor people today to benefit their far richer descendants a century or two hence.

It is time the Government ceased to use the Stern Review to justify their climate change policy. They should commission a new, genuinely independent review.

19 comments for: Peter Lilley: Ten years on, the Stern Review’s failures still need to be exposed

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