Should Lord Stern remember some economics?

After Lord Stern’s comments about becoming a vegatarian to save the plant, I suggested he should be consistent and become a vegan. A post by Martin Livermore on the Adam Smith Insitute blog got me thinking that maybe Lord Stern would be advised to remember some lessons from economics. After all, as an economist, Lord Stern was employed to do a cost benefit analysis of tackling global warming. The report was only able to reach its conclusion that we should do something now by taking an extreme view of future temperature change (thus overstating the benefits of any remedy) and seriously understating the costs. Mostly this was by failing to apply an appropriate rate of discount to future costs and benefits.

Since then Lord Stern has become increasingly alarmist. If instead, he applied some of the tools of his profession he would conclude the following.


1. Most of the largest greenhouse gas producers are things that have an inelastic demand – such as petrol and fuel to heat one’s home. Therefore the costs will tend to exceed the benefits.


2. There are diminishing returns to emissions reductions. Small decreases can be achieved easily. At home most can save a bit by better insulation in the loft, or by turning town the thermostat by 1 degree. Car fuel consumption can be reduced by driving more economically. Bigger savings are less easy, without fundamental changes in lifestyle, which for the majority would mean a significant drop in living standards. For instance,

– switching from frozen and chilled foods to dried and tinned foods.

– switching foreign holidays to camping in the back garden.

– From travelling by car to work to spending three times as long going by public transport, or catching pneumonia cycling.


3. Large government projects tend to overrun on costs, and under-perform on benefits. The bigger and more idealistic the project, the larger the (proportionate) discrepancy between plan and outcome. International projects tend to overrun more than national one, as consensus is only achieved by compromise fudging. For the greatest trans-government project of all time, this risk alone should lead to the complete abandonment.


4. Complex models tend to fail most in their forecasting when you need them most. Consensus economic forecasts made in 2006 for 2009 would have predicted growth, not biggest slump since the 1930s. Yet compared to economic, climatology is more complex and still in its infancy as a subject. Further there is no competitive market in forecasting to encourage improvement and revision in the light of new data. In economics reputable  forecasting is a valuable commodity. In Climate Science, one is paid to agree with the consensus.

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