Climate costs too great to ignore: Lord Stern calls for carbon price

18 June 2014

LONDON: The economic cost of climate change is greater than previously believed, argues Lord Nicholas Stern in a new academic paper published this week.

Current economic models used to predict global warming impacts on the world’s economy so far fail to take account of the most recent research, and hence are insufficient for calculating total risk, the eminent economist has outlined in a peer-reviewed piece to be published in The Economic Journal.

The report, which Stern co-authored with Dr. Simon Dietz, takes as its point of departure William Nordhaus’ ‘dynamic integrated climate-economy’ (DICE) model which, although widely used, is now over 20 years old.

The academics point to the inadequacies of this standard model, highlighting that loss of 50% GDP is predicted on the basis of an average global temperature rise of 18 centigrade degrees, “even though such warming would likely render the Earth uninhabitable for most species, including humans”.

Furthermore, conventional economic models assume a rise in temperature of 5-6 degrees above pre-industrial levels would not cause catastrophic damages, an assertion which has no basis in scientific fact, the authors contend.

As a result of using dated models, reports on climate change are conservative in their estimate of the financial ramifications of global warming, and Stern advocates economists adapt their positions to reflect the new scientific evidence which has emerged in recent years.

The LSE Professor argues: “It is extremely important to understand the severe limitations of standard economic models, such as those cited in the IPCC report, which have made assumptions that simply do not reflect current knowledge about climate change and its potential impacts on the economy.”

Dr Dietz added: “Our aim was to show how a new version of the model could produce a range of results that are much more representative of the science and economics of climate change, taking into account the uncertainties.”

Stern and Dietz’s updated version of the DICE model indicates that a carbon price of US$32-103 per tonne of emissions is now necessary. By 2035, this could rise to as much as US$S82-260 a tonne, the academics acknowledge.

The current total value of the world’s emission trading schemes is approximately US$30 billion, the World Bank recently reported.

Commenting on Stern and Dietz’s findings, Mark Kenber CEO of The Climate Group remarked: “This new research argues the case for the low carbon economy in the clearest terms yet. A business-as-usual approach is placing inordinate strain on natural resources, as well as jeopardizing the safety and health of the global population."

"As many from the business community have argued, one of most effective and efficient ways to tackle rising emissions is to put a price on carbon that reflects the costs of climate change and drives firms and individuals to make low carbon choices. Policymakers worldwide would do well to act on Stern and Dietz’s recommendations, and over the coming year and a half have the ideal opportunity to do so.”

Read more:

Global carbon markets to rise to $62.5 billion in 2014

China to launch two critical carbon markets next week

Carbon price in China’s first trading market overtakes EU's ETS

By Alana Ryan

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