Way, way back in the 2000s, when everyone believed in Hockey Sticks, the UK’s Labour government commissioned somebody nobody had ever heard of to write a report on the economics of climate change, so that it could make an argument for domestic and international political action. The Stern Review on the Economics of Climate Change has been, ever since, cited in debates about climate policy, the world over, and Nick Stern has become the climate alarmist’s chief guru.
There are many hundreds of pages in the Stern Review. But the detail was abandoned, the review became famous for its simplest and most compelling argument:
Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.
In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.
Stern presented the world with a stark choice: pay 1% of GDP to fix climate change now, or lose at least 5% of GDP in the future.
It is a surprise then, to see Nicholas Stern in today’s Guardian, arguing that growth is now possible:
We can avoid climate change, and boost the world’s economy – if we act now
Reversing the damage is within our grasp, but it will hinge on a strong international climate agreement and policies that make polluters pay
The global economy is undergoing a remarkable transformation which is altering our ability to deal with climate change. The growth of emerging economies, rapid urbanisation and new technological advances are making possible a new path of low-carbon growth in ways that were not apparent even five years ago.
Stern’s article does not tell us what these transformations are. A clue is offered in Fiona Harvey’s article on the same:
With all of that scientific knowledge has come technological innovation. Wind turbines were an expensive novelty in the 1980s. Today, several generations of the technology later, they can compete with fossil fuels in generation capacity and on cost. Solar panels have dropped in cost so rapidly that they are economically viable without subsidy in many regions, even those not blessed with constant sunshine. Even fossil fuel-burning power plants have become more efficient, and electric cars provide an alternative to gas-guzzlers, while better building design and more advanced electrical equipment mean we can enjoy modern facilities without rising emissions.
If this is the extent of the technological change, it is underwhelming. Wind turbines cannot compete with fossil fuels in either capacity or cost. As pointed out in the previous post, the entire UK’s wind fleet does not match the output of the coal fired (now converted) Drax power station in Yorkshire. And to make them and other renewable techniques viable, the UK government have committed to subsidising them at least up until 2020. See page 7 of the UK’s new energy market rules here.
Under those rules, onshore wind generators will receive £95 per MWh in 2014/15, dropping slightly to £90 in 2018/19. Offshore wind will receive £155, dropping to £140. In the best case, this doubles the cost of electricity. And this does not yet take into consideration the cost of intermittent wind energy, which rises as the scale of deployment rises. Ditto, the ‘rapid’ drop in cost of solar PV still leaves operators receiving £120 per MWh today, falling to £100 in 2018/19. Even if solar PV could produce energy at the same price as fossil fuels, they would only be ‘competitive’ with fossil fuels if you had no need of electricity at night. There are still close to zero reliable and ‘sustainable’ despatchable techniques for providing baseload and load following. As I argued a few months ago, solar energy’s evangelists are mathematically illterate.
Stern and Harvey’s articles come in the wake of a new report, which Harvey introduces as follows:
Sounds familiar? The New Climate Economy report, co-authored by Nicholas Stern, is published on Tuesday but it echoes the warnings first set out in stark terms in his landmark review of the economics of climate change in 2006. Then, his findings were revolutionary. Naysayers had argued that climate change was just too big a problem, too expensive to solve, requiring as it does an overhaul of the world’s energy systems and economy. Stern proved – in language that economists can understand – that it could be done, that dealing with climate change need not cost the earth.
Harvey, like her Guardian colleague, George Monbiot, re-writes the history of the climate debate. As is explained above, Stern did not debunk the notion that climate change was inexpensive, he argued that it would cost 1% of GDP. 1% of GDP is the difference between modest growth and recession.
The report is available here. The website at least is a triumph of style over substance — if you want to actually find out what the report says, you have to overcome the extremely irritating web gimmicks. Fortunately, searching reveals the download link for a PDF of the summary document here.
On the subject of growth, the report says,
There is a perception that strong economic growth and climate action are not, in fact, compatible. Some people argue that action to tackle climate change will inevitably damage economic growth, so societies have to choose: grow and accept rising climate risk, or reduce climate risk but accept economic stagnation and continued under-development.
Yes, it is a perception that Stern himself created. He said responding to climate change would cost ~1% of GDP. The report continues…
This view is based on a fundamental misunderstanding of the dynamics of today’s global economy. It is anchored in an implicit assumption that economies are unchanging and efficient, and future growth will largely be a linear continuation of past trends. Thus any shift towards a lower-carbon path would inevitably bring higher costs and slower growth.
So Stern ‘fundamentally misunderstood the dynamics of the global economy’?
The report then discusses the changes to the global economy that will be experienced in the future, and how the structure of the economy will develop.
But what kind of structural changes occur depends on the path societies choose. There is not a single model of development or growth which must inevitably follow that of the past. These investments can reinforce the current high-carbon, resource-intensive economy, or they can lay the foundation for low-carbon growth. This would mean building more compact, connected, coordinated cities rather than continuing with unmanaged sprawl; restoring degraded land and making agriculture more productive rather than continuing deforestation; scaling up renewable energy sources rather than continued dependence on fossil fuels.
In this sense, the choice we face is not between “business as usual” and climate action, but between alternative pathways of growth: one that exacerbates climate risk, and another that reduces it. The evidence presented in this report suggests that the low-carbon growth path can lead to as much prosperity as the high-carbon one, especially when account is taken of its multiple other benefits: from greater energy security, to cleaner air and improved health.
So Stern has moved from saying that climate policies will cost, to saying that there are no costs.
This reads so far like simply moving the goal posts. Whereas in the mid 2000s, Stern et al emphasised the imperative of responding to climate change — or facing catastrophe — they now want to present global political action as entirely inconsequential with respect to cost. This shift of emphasis is in reality a response to climate advocates’ slow realisation that their alarmism, combined with the fact of costs, merely allowed positions on the climate to become entrenched. One major obstacle besetting global negotiations was the problem of disparity between developing and developed economies: advanced countries would take a bigger hit from a policy, while increasingly wealthy, but still (rapidly) ‘developing’ economies such as China and India would soon be given a substantial competitive advantage. The poorer countries rightly argued that they should not abandon their development, and the richer countries rightly argued that they would damage their own relatively slow-growing economies. The solution offered by anti-growth environmentalists was ‘contraction and convergence’: richer parts of the world would find equitable ways of allowing their economies to shrink until they reached some level of parity with countries coming the other way.
The climate ‘movement’ — such as it is — has always suffered from tension between technocratic green ‘capitalists’ and a scruffier (and no less technocratic) anti-growth contingent. To many sceptics’ perspectives, both camps sought their own elevation by smuggling in under science their rent-seeking impulses or anti-capitalist (respectively) politics. They were right. The nauseating, facile and easily debunked optimism of green capitalists always belied their threat of global catastrophe. And similarly, the equally absurd more left-leaning claims that ‘climate justice’ would end global poverty and war denied the fact that abundant and cheap energy is a necessary (albeit not sufficient) condition for development and actual justice. Climate’s superheroes from both camps have never been able to overcome the possibility that the remedy might be worse than the disease. The maths didn’t stack up. The catastrophic stories just didn’t help formulate policies or encourage agreements. Ends and means became confused, and nobody could agree on either ends or means. The argument for climate action contradicted itself, its proponents disagreed with each other, but blamed the deniers.
The easiest first step in the way out of this impasse is to pretend that climate policies are inconsequential. This requires a pseudo-academic exercise, in which climate researchers pretend to revisit their assumptions. On the way, they produce this kind of monster:
The graphic encourages us, fingers on chins, to nod at the elegant design of this new research. Who knew that solving the world’s problems was as simple as a picture showing the intersection of three vertical arrows pointing towards ‘the wider economy’ with three vertical arrows pointing towards ‘high quality, inclusive and resilient growth’? Those evil climate sceptics had never thought about ‘resource efficiency’, had never been bothered by ‘infrastructure investment’, and never gave a hoot or even talked about ‘innovation’. Now the world’s dilemma presented by Stern is simple: between growth and better growth.
This is made especially weird by the fact that Stern has not, in recent times, been toning down his rhetoric at all. A Guardian article in 2013 quoted Stern,
Nicholas Stern: ‘I got it wrong on climate change – it’s far, far worse’
Author of 2006 review speaks out on danger to economies as planet absorbs less carbon and is ‘on track’ for 4C rise
In an interview at the World Economic Forum in Davos, Stern, who is now a crossbench peer, said: “Looking back, I underestimated the risks. The planet and the atmosphere seem to be absorbing less carbon than we expected, and emissions are rising pretty strongly. Some of the effects are coming through more quickly than we thought then.”
The Stern review, published in 2006, pointed to a 75% chance that global temperatures would rise by between two and three degrees above the long-term average; he now believes we are “on track for something like four “. Had he known the way the situation would evolve, he says, “I think I would have been a bit more blunt. I would have been much more strong about the risks of a four- or five-degree rise.”
At best, Stern is arguing, then, that although the climate is worse than he thought, the possibilities for mitigating those problems are better than he thought. These thoughts, and the development between his thinking in 2006 and 2014 should be laid out more clearly. But instead, we get this, expanding one of the blocks in the above graphic:
Energy systems, which power growth in all economies. Energy production and use already account for two-thirds of global GHG emissions, and over the next 15 years, global demand for energy is expected to rise by 20–35%. Meeting that demand will require major new investment, but energy options are changing. Fast-rising demand and a sharp increase in trade have led to higher and more volatile coal prices, and coal-related air pollution is a growing concern. At the same time, renewable energy, particularly wind and solar power, is increasingly cost-competitive, in some places now without subsidy. Greater investment in energy efficiency has huge potential to cut and manage demand, with both economic and emissions benefits. Taking advantage of new technologies to provide modern energy services to the 1.3 billion people who still have no electricity, and 2.6 billion who lack modern cooking facilities, is also crucial for development.
Is the price of coal ‘higher and more volatile’ than it might be?
There have been peaks and troughs, of course — most notably in 2008, when all energy prices rose, thanks to a speculative bubble. Green energy would not protect against such volatility, and given renewable energy’s own inherent volatility, wind and sunshine being subject to Nature’s whims, green autarky might amplify energy price volatility. Hence, ‘demand-side management’, including smart meters open up the possibility of time-of-day pricing. Demand might cause electricity to be too expensive for you to take a shower in the morning, but by lunch time, surplus may be being given away for free. Otherwise, the price of coal looks relatively stable, even falling since 2010, which is offered as one explanation for Europe’s recent increasing use of it. Especially uber-green Germany, where coal use increased from 224,716,000 tonnes in 2009 to 247,526,000 tonnes in 2012. So much for solar panels and wind farms offering competitive alternatives to fossil fuels.
In that same country, the cost of subsidies to renewable operators exceeds 16 billion euros a year. Yet the price of solar panels, says Stern, has fallen. Leaving aside the question of competitiveness for the moment, this creates a further bind for Stern. Had Britain followed Stern’s instructions and Germany’s winding Energiewende back in 2006, it would have the same problems, including energy prices twice what they are now, whereas if policy had been delayed, it would be able to take advantage of a cheaper technology, and committed more to reducing emissions on a £-for-£ basis. Stern was — and still is — adamant that the world cannot afford a wait-and-see policy with respect to climate change, but by claiming that the costs of renewable energy technology have fallen, he defeats his own argument.
It gets worse for Stern. The price of solar panels fell because of European mandates, which created a market for products that European companies could not deliver as efficiently as their counterparts in more dynamic Eastern economies, thanks in part to its own economic stagnation and in turn, of course, to the cost of energy in Europe. The European Commission, which campaigns for global agreements and included amongst its top staff until this month, the climate policy evangelist, Connie Hedegaard, announced in 2013,
The Council today backed the Commission’s proposals to impose definitive anti-dumping and anti-subsidy measures on imports of solar panels from China. In parallel, the Commission confirmed its Decision accepting the undertaking with Chinese solar panel exporters applied since the beginning of August.
In order to prevent dumping of solar panels on EU markets, the Commission has applied a 47.7% import tariff on Chinese panels, rising to 64.9% ‘applied to those exporters who did not cooperate in the European Commission’s investigation’. The irony of all this will not escape readers,
EU ProSun, an industry association, claimed in its complaint lodged on 26 September 2012 that solar panels and their key components imported from China benefit from unfair government subsidies.
Perhaps one of the most heavily subsidised industries in Europe’s history, which had virtually no market before government intervention, complained to the EC that China was subsidising its solar panel manufacturers. This, at a time when, even in the UK, domestic solar panels earned their owners a subsidy worth five times the market value of the electricity they produced.
So much for ‘resource efficiency’, ‘infrastructure investment’ and ‘innovation’, each driven by policy, then. Good or bad, the Chinese got very right what European policy makers — who were hoping to lead the world in green tech — got very, very wrong indeed. They created a market for a product they believed would reduce imports and reduce the volatility of energy prices, but demolished their domestic industry. So much for ‘high quality, inclusive and resilient growth’.
The claim that renewable energy ‘is increasingly cost-competitive, in some places now without subsidy’ forgets that the production of solar panels has been subsidised in a trade war.
On to the report’s discussion about development, in particular that ‘1.3 billion people who still have no electricity, and 2.6 billion who lack modern cooking facilities’. The reference given is to
International Energy Agency (IEA), 2011. Energy for All: Financing Access for the Poor. Special early excerpt of the World Energy Outlook 2011. First presented at the Energy For All Conference in Oslo, Norway, October 2011. Available at: http://www.iea.org/papers/2011/weo2011_energy_for_all.pdf.
It has never been clear to me how renewable energy is supposed to help the poor. And it seems that the IEA, in spite of its recent re-framing as a green energy lobbying organisation did, in 2011, share this point of view.
Achieving universal access by 2030 would increase global electricity generation by 2.5%. Demand for fossil fuels would grow by 0.8% and CO2 emissions go up by 0.7% [over the New Policies Scenario], both figures being trivial in relation to concerns about energy security of climate change. The prize would be a major contribution to social and economic development and help to avoid 1.5 million premature deaths per year.
The New Policies Scenario looks like this:
The 2011 IEA report still bangs on about climate change — climate finance in particular. But it nonetheless shows that there are bigger problems, though perhaps not as fashionable, than climate change. And it shows that climate change might be a price worth paying for development.
It would be great if there were time to pick apart the whole report. But who has the resources — the time and money?
The report is yet another massive volume intended to dominate debate. It sets out an incoherent and badly sourced argument in favour of certain policies, simply to suit the needs of upcoming negotiations. Stern softens his earlier findings, not because there is new evidence, either of a worsening climate or new possibilities of responding to it, but for nakedly political reasons: the desire for an agreement at the UNFCCC COP meeting in Paris 2015, which is looking increasingly unlikely. Having been so instrumental in the failures so far, Stern was the right choice of humpty-dumpty academic for interested parties to commission, as the report explains.
This programme of work was commissioned in 2013 by the governments of seven countries: Colombia, Ethiopia, Indonesia, Norway, South Korea, Sweden and the United Kingdom. The Commission has operated as an independent body and, while benefiting from the support of the seven governments, has been given full freedom to reach its own conclusions.
This explains what Andrew Montford observes today, over at Bishop Hill:
I awake this morning to find my timeline awash with spam from the Foreign and Commonwealth Office, furiously retweeting the launch of a report by the New Climate Economy group, a group of green-minded economists headed by Lord Stern and including such eco-figureheads as Ottmar Edenhofer.
The NCE report, which is here, looks to be very much “more of the same” – renewables blah, investment blah, taxes blah rhubarb blah. I’m more interested in the role of the FCO. Under William Hague’s leadership they look to have adopted a full-on role as eco-campaigners. Which is odd because I thought abusing taxpayers’ funds in this way was DECC’s responsibility.
Clearly, the FCO were involved in eliciting the joint commissioning of other countries. Ethiopia’s GDP per capita in 2013 was US$498. It has nothing to gain by following Stern’s new report.
Moreover, anybody who believes that commissioning Stern does not mean commissioning a report with a foregone conclusion, which suits the political needs of the present negotiations is very daft indeed. Stern gives the game away earlier this year, when he tried to link climate change to the storms being suffered in the UK
The lack of vision and political will from the leaders of many developed countries is not just harming their long-term competitiveness, but is also endangering efforts to create international co-operation and reach a new agreement that should be signed in Paris in December 2015.
In order to manage the perception of the UNFCCC meetings, Stern needed to edit his 2006 review. And SUPRISE! he finds something which is much more palatable.
Enough about the report, what about the organisation which produced it?
… is a major new international initiative to analyse and communicate the economic benefits and costs of acting on climate change. Chaired by former President of Mexico Felipe Calderón, the Commission comprises former heads of government and finance ministers and leaders in the fields of economics and business.
The New Climate Economy is the Commission’s flagship project. It aims to provide independent and authoritative evidence on the relationship between actions which can strengthen economic performance and those which reduce the risk of dangerous climate change. It will report in September 2014.
The project is being undertaken by a global partnership of research institutes and a core team led by Programme Director Jeremy Oppenheim. An Advisory Panel of world-leading economists, chaired by Lord Nicholas Stern will carry out an expert review of the work.
We are working with a number of other institutions in various aspects of the research programme, including the World Bank and regional development banks, the International Monetary Fund, International Energy Agency, Organisation for Economic Co-operation and Development, United Nations agencies and a variety of other research institutes around the world.
This is yet another inter-governmental organisation, founded without any real mandate, to manage the perceptions of climate negotiations, and to preclude debate.
After publication of its report in September 2014, the Commission will take its findings and recommendations directly to heads of government, finance and economic ministers, business leaders and investors throughout the world in a systematic outreach strategy. The results will be communicated to the wider economic community and civil society through a variety of global and national media channels. The aim is to contribute to global debate about economic policy, and to inform the policies pursued by governments and the investment decisions of the business and finance sectors.
Nobody will ever be accountable for decisions informed by the New Climate Economy. The partners in The Global Commission on the Economy and Climate are all parties with a given interest in establishing global policies. So the authors of the report can be as promiscuous with the facts as they want. Is this not obvious? Take, for instance this page, detailing the profiles of people involved with the project,
Ben Combes is a co-principal on the New Climate Economy with John Llewellyn, working on the macroeconomic programme. Ben has over ten years’ experience working in economics, strategy, and policy. An experienced macroeconomist, he also has extensive environmental economics expertise, across both public and private sectors. Ben spent four years in the UK Government Economic Service working on macro themes: first, on energy and environment at Defra; then on climate change at the UK Committee on Climate Change with Adair Turner (Chair). Before that, he spent three years at macroeconomic consultancies: GFC Economics with Graham Turner, analysing G8 economies; and Oxford Economics. More recently, he led a strategic review of the Civil Aviation Authority’s environmental role for Andrew Haines (CEO). Ben started at Deloitte in audit and advisory. He holds an MA (Hons) in Economics from the University of Edinburgh, and an MSc in Environmental and Resource Economics from University College London. Ben directs work on a number of macro themes, notably demographics, energy, and technology.
Michael Jacobs is Senior Adviser to the New Climate Economy, responsible for supporting the Program Director and management team on overall strategy. He is Visiting Professor at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and in the School of Public Policy at University College London, and Senior Adviser at the Institute for Sustainable Development and International Relations in Paris. He was formerly Special Adviser to UK Prime Minister and Chancellor of the Exchequer Gordon Brown. An economist, he has written extensively on environmental economics and politics.
Christoph Mazur is a researcher working on the Transformation of Transport within the Innovation Workstream at the New Climate Economy. Chris is a PhD researcher of the Grantham Institute for Climate Change at Imperial College London, and also a Climate-KIC PhD student. His research on socio-technical systems looks at sustainable transitions in the transport sector, and especially the transition from fossil fuel based cars to hybrid, electric or fuel cell vehicles. Before that he worked as Manufacturing Engineer for Daimler Buses North America and recently finished a fellowship at the UK Parliamentary Office for Science and Technology in Demand-Side Response. Chris has a degree in Mechanical Engineering and Business Administration (RWTH Aachen) as well as Industrial Design (Ecole Centrale Paris). Follow him on: LinkedIn.
Daniele Viappiani is Senior Programme Officer at the New Climate Economy, where he is contributing directly to the research on Drivers of Growth while also helping to ensure the overall research programe is sound, relevant and communicated clearly. Daniele is seconded from the UK Department for Energy and Climate Change, where he works as senior economist on International Climate Change. Prior to joining NCE, Daniele held a number of positions on climate change and food security at the UK Department for Environment Food and Rural Affairs, including as head of the UK government research programme on climate change adaptation. He loves cooking and speaks fluent Italian and Spanish. Daniele has an MPA from the London School of Economics and a BSc in Economics from Bocconi University.
The Global Commission on the Economy and Climate claims its aims are to ‘contribute to global debate about economic policy, and to inform the policies pursued by governments and the investment decisions of the business and finance sectors’. But it is comprised of people already working towards an agenda, simply transplanted from one institution to another. If the climate policy debate were to draw on indefinitely and each person in it were immortal, in not much time at all there would be organisations formed comprising every possible combination of people. It is inconceivable that this organisation would not produce precisely what the British government wanted it to produce, just as it is inconceivable that Nick Stern would produce something inconvenient to upcoming climate talks. It is like asking Charlie Sheen to write a report on the virtues of sobriety and temperance.
Here we see yet another climate institution, manufactured by governments, to produce evidence that they will wave during negotiations in favour of the policies they have already determined they want. Policy-based evidence-making can now be seen as an institutional process. It is an absurd charade, which is made necessary because truly independent research organisations i) no longer exist, and ii) would not write such a document, and there is no trust for the organisations behind the new initiative. Thus it is necessary to produce ‘research’ for the needs of the upcoming negotiations.
This institutional cancer demolishes the distinctions between research, governance, negotiations, business and media. What Guardian hacks say is what self-serving NGO hacks say is what Stern says is what the government commissioned. The people left out of all of this, though, is the public. Political expediency causes a tragic corrosion of the public sphere, a loss of debate, and ultimately the loss of the value of research and science to society. Why bother with the charade?