The Stern Review - the fundamental errors.
The Stern Review Summary
Climate change presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen...
Um - I don't see any evidence presented here, or else where that this is a "market failure" - That bold unsupported assertion seems to be slipped in to justify government intervention.
To meet these requirements, the Review draws on ideas and techniques from most of the important areas of economics, including many recent advances.
And what recent advances are they? Good old fashioned cost/ benefit analysis and discount rates are hardly new, or is there some new tricky stuff you are using?
The stocks of greenhouse gases in the atmosphere (including carbon dioxide, methane, nitrous oxides and a number of gases that arise from industrial processes) are rising, as a result of human activity... These concentrations have already caused the world to warm by more than half a degree Celsius and will lead to at least a further half degree warming over the next few decades, because of the inertia in the climate system...
there is at least a 77% chance - and perhaps up to a 99% chance, depending on the climate model used - of a global average temperature rise exceeding 2°C.
And this is where the fundamental problem with the Stern Review is. The estimate for the global temperature rise is about 0.7 degrees, with large amount of uncertainty. The greenhouse gases he mentions are only one factor, water vapour is far larger "greenhouse gas - a rough approximation is that water vapour contributes 60% of the greenhouse effect, CO2 20% and other gases 20%. There are also other influence such the changing albedo of the earth due to landuse changes, solar radiation, particular pollution etc. So for Stern to boldly claim that our emissions have caused a certain rise is unsupported by the evidence and goes beyond what the IPCC says.
He notes that we are dealing with probabilities - though some might say they are more like bookmaker odds than scientific probabilities as they are based on untested assumptions - and then seems to ignore them. If a future result only has a 77% chance (or whatever figure you choose) of happening, then either the discount rate must take that into account, which he doesn't seem to do or the end analysis must be tempered by it. Otherwise we have the position where "the benefits of" buying a lottery ticket "outweigh the cost" simply because we have forgotten to factor in the odds of not actually picking up the jackpot.
He then dips his toe into what happens if you let the market deal with the problem rather than have central planning solve it - which is the fundamental difference between "adaptation" and "mitigation":
Adaptation is the only response available for the impacts that will occur over the next several decades before mitigation measures can have an effect. Unlike mitigation, adaptation will in most cases provide local benefits, realised without long lead times. Therefore some adaptation will occur autonomously, as individuals respond to market or environmental changes. Some aspects of adaptation, such as major infrastructure decisions, will require greater foresight and planning. There are also some aspects of adaptation that require public goods delivering global benefits, including improved information about the climate system and more climate-resilient crops and technologies..
The challenge of adaptation will be particularly acute in developing countries, where greater vulnerability and poverty will limit the capacity to act. ...
Markets that respond to climate information will stimulate adaptation among individuals and firms. Risk-based insurance schemes, for example, provide strong signals about the size of climate risks and therefore encourage good risk management....
Sustainable development itself brings the diversification, flexibility and human capital which are crucial components of adaptation. Indeed, much adaptation will simply be an extension of good development practice – for example, promoting overall development, better disaster management and emergency response. Adaptation action should be integrated into development policy and planning at every level.
Not much there to disagree with, but that isn't the story the sponsors of his report want to hear. The simple solution is there - help the poor get richer as quickly as they can and they will deal with the problems in a cost effective way by adapting to the changes. From the Baring Sea to Burkino Faso people deal with the different climates by "adaptation". That is a "known"; the extent of change that reducing CO2 emissions in the UK will cause is an "unknown". The effects of changing taxation on us to socially engineer our behaviour and our ability to "pay" for adaptation are "unknown". And to suggest otherwise is wrong and dangerous.