BY KATIE - MYGREENPOD, 03 March '16

Nicholas Stern: the world deserves better and more robust economic models of climate change

Nicholas Stern has called on researchers to improve the models used to estimate the costs of acting on climate change.

Putting a price on Nature – research team develops an equation to calculate the value of natural capital

We deserve better

In an article published in the journal Nature last week (24 February 2016), Lord Stern argues that flawed climate modelling is deeply damaging to public policy and that people around the world deserve better.

He notes that existing models tend to underestimate the damages caused by climate change, as well as underestimating the potential of technology to help avoid dangerous climate change.

Lord Stern points to the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report, which acknowledges the difficulties in estimating the global economic impacts of climate change.

Limitations of IAMs

Existing integrated assessment models (IAMs), for instance, ‘struggle to incorporate the scale of the scientific risks’ as they don’t account for tipping points and catastrophic changes that can be triggered by factors such as sea level rise, thawing of permafrost and the release of methane into the atmosphere.

IAMs also fail to account for some of the largest potential impacts of climate change, such as extreme weather and conflict.

According to the article, it is these hard-to-predict impacts that are ‘the most troubling potential consequences of inaction’. The next IPCC report needs to be based on a much more robust body of economics literature, which we must create now as it ‘could make a crucial difference’.

Misleading policy-makers

Lord Stern also argues that current models of the economic impacts of reducing greenhouse gas emissions can mislead policy-makers.

The article states that the business-as-usual baseline, against which costs of action are measured, conveys ‘a profoundly misleading message’ to policy-makers that there is an alternative option in which fossil fuels are consumed in ever greater quantities without any negative consequences to growth itself.

Economic models for climate change must be improved radically, Lord Stern argues, noting that incremental improvements to the present generation of IAMs ‘may not be enough’ to help national policy-makers implement the Paris Agreement effectively.

‘There is huge potential in future technologies that can drive change. These are omitted or badly underestimated in our current climate modelling — deeply damaging to our guidance for policy-making. The well-being and prosperity of future generations are worth more.’

Nicholas Stern, Economics: Current climate models are grossly misleading

Finding new models

Lord Stern suggests that ‘damage functions’, which describe how losses increase due to climate change impacts, should be made much more realistic in existing models and that new models should be developed.

These include dynamic stochastic computable general equilibrium (DSGE) models that can be used to ‘account for uncertainty about the future through the introduction of shocks’ and agent-based models (ABMs), which are widely used in the finance sector and could help understand complex changes to the economy under climate change.

‘Now, a concerted effort is required by the research community to explore as many potential avenues as possible to better estimate the costs of action and inaction on climate change. The IPCC should distil what policy-makers need to inform their decision-making. Learned societies and national academies must bring together researchers from a wide range of relevant disciplines to focus attention on improving economic modelling quickly.’

Nicholas Stern, Economics: Current climate models are grossly misleading

Click here to read the full article in the journal Nature.