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« Tabloid academics | Main | Going down? »
Thursday
Feb252016

Stochastic Stern

You know all that money we have been spending on developing economic models of the effects of climate change? Well apparently it has mostly been wasted. At least that's the case according to Lord Stern, whose article in the sociology journal Nature says that we should be moving onto something more reliable.

Because the IAMs omit so many of the big risks, SCC estimates are often way too low. As a first step, the consequences being assessed should include the damages to human well-being and loss of life beyond simply reduced economic output. And the very large uncertainty, usually involving downward bias, in SCC estimates should always be made explicit...

A comprehensive review of the problems of using IAMs in climate economics called for the research community to develop a “third wave” of models. The authors identify various types of model that might offer advances. Two are: dynamic stochastic computable general equilibrium (DSGE) models, and agent-based models (ABMs).

It's also interesting to see stochastic modelling being touted in a week when climatologists have been outraged by a suggestion that such an approach might be useful in their own field. 

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Reader Comments (31)

The SCCs are way too low. That's the Social Cost of Carbon to you and me.

Can I just add that perhaps the SBCs are totally omitted from the models?

Feb 25, 2016 at 10:16 AM | Unregistered CommenterCapell

I am reminded of the saying "Those whom the Gods wish to destroy first study economics".

Stern has jumped the shark so many times that he is now a laughing stock. Indeed, we must wonder whether Stern is being used by Grantham to protect Ward. Now that's a thought!

Feb 25, 2016 at 10:28 AM | Unregistered CommenterNCC 1701E

Over the last decade, Nick Stern has received tens of millions of pounds in research funding. Why did he not just build the models he wants? Where did all that money go?

The leading researchers in the economics of climate change have turned their backs on model building. Research has decidedly moved to empirical analyses.

Feb 25, 2016 at 10:31 AM | Unregistered CommenterRichard Tol

"As a first step, the consequences being assessed should include the damages to human well-being and loss of life beyond simply reduced economic output."

I have no problem with that.

Provided ...... they also factor-in the benefits of more people, living longer, in better health, with fewer infant deaths, lower childhood mortality, etc, etc, etc. - leading to increased economic output.

Feb 25, 2016 at 10:43 AM | Unregistered CommenterJoe Public

Exactly, Richard Tol. Whatever the facts may be for most of the real world, the social cost of carbon to Lord Stern has always been a nice little earner.

Feb 25, 2016 at 10:47 AM | Unregistered Commentermichael hart

"As a first step, the consequences being assessed should include the damages to human well-being and loss of life beyond simply reduced economic output."

Nick Stern may want to have a look at the 1992 PhD thesis of Samuel Fankhauser, where he estimates exactly that. PhD thesis are often hard to get, but as Fankhauser is a director of the centre that Stern chairs, he should be able to get his hands on a copy.

Feb 25, 2016 at 10:56 AM | Unregistered CommenterRichard Tol

By dividing DBLR by 1.5 on the Krampff Scale, SLX becomes less than 7**3 - then what effect does this have on TPQ?

Feb 25, 2016 at 11:17 AM | Unregistered CommenterFather Mike

@hart: the Social Cost of carbon IS Lord Stern......

Feb 25, 2016 at 11:35 AM | Unregistered CommenterNCC 1701E

@NCC
The social cost of carbon was introduced by Bill Nordhaus, two decades before Nick Stern first wrote about climate change. The social cost of carbon of course derives from Pigou's work in the 1920s. The actual term "social cost of carbon" was, I believe, coined by David Pearce in the early 1990s.

Feb 25, 2016 at 11:49 AM | Unregistered CommenterRichard Tol

"As a first step, the consequences being assessed should include the damages to human well-being and loss of life beyond simply reduced economic output."

On Twitter, Chris Hope reminds us that his PAGE model does exactly as recommend by Stern. The PAGE model was, of course, used extensively in the Stern Review.

Feb 25, 2016 at 11:55 AM | Unregistered CommenterRichard Tol

"Because the IAMs omit so many of the big risks, SCC estimates are often way too low."

If he knows what the SCC is (and if he doesn't how does he know the estimates are too low?), why do the existing models not just use the SCC that Stern knows?

Or could it be that Stern doesn't actually know what the SCC is and so actually has no idea whether estimates are too high, too low or just right?

Feb 25, 2016 at 12:10 PM | Unregistered CommenterTim Hammond

Hi Father Mike, I get where you're coming from. However, you seem to have overlooked the fact that Krampff has been discredited ever since that unfortunate incident at the Heidelburg conference (less said the better, wink, wink).

As you probably know, since then it has been de rigeur to use the DRS system as long as it is in anti-clockwise direction (Northern Hemisphere only, natch). This will ensure the RPGs are aligned within the Hadron matrix for more robust results (after removing the gamma bias).

I might be going out on a limb here but I suggest we skip the "fourth wave" and go straight for the "fifth", what do you reckon? Either way, I'm sure we agree more funding is needed to balance the risk free PTAs with the uncertainty outputs from the ICBMs (sadly often overlooked).

TTFN.

Feb 25, 2016 at 12:21 PM | Registered CommenterSimonW

@Toll: IPCC climate science is based on a bad physics' mistake by R D Cess in 1976, backed up by a GISS 2-D modelling paper which offset the 40% increase in energy over reality from Cess' mistake, by fallacious 'negative convection!

In reality 1980s and 1990s warming, still being seen in the present El Nino, was from another factor, and is now over as the planet reacts. So, there is very little if any social cost of carbon as CO2 - it's driven by ocean temperature which did increase for a while.

Feb 25, 2016 at 12:21 PM | Unregistered CommenterNCC 1701E

It is said "God made economists to make weathermen look good."
h/t Richard Lindzen

Feb 25, 2016 at 12:24 PM | Unregistered CommenterRon C

Has anyone calculated the consequential cost in human lives of the Stern report? There is of course the consequential financial cost on top.

Feb 25, 2016 at 12:24 PM | Unregistered Commentergolf charlie

Anything Stern says is a dogs dinner, especially the IAM's stuff

Feb 25, 2016 at 12:43 PM | Unregistered CommenterNeilC

What about the overwhelming benefits of carbon?

Feb 25, 2016 at 12:52 PM | Unregistered CommenterPaul Biggs

SimonW 12:21pm

Thx for reminding me about that incident at Heidelburg which had completely slipped my mind. Absolutely agree re. skipping the fourth wave - and, of course, funding - tho' I think we should try to keep costs reasonable. Perhaps we should ask Nick?

Feb 25, 2016 at 2:00 PM | Unregistered CommenterFather Mike

Richard Tol: ".....as Fankhauser is a director of the centre that Stern chairs, he should be able to get his hands on a copy."

I notice that Fankhauser is stepping down from from the Adaptation Sub-Committee of the CCC, but will still be on the main committee:

https://www.theccc.org.uk/2014/09/18/professor-samuel-fankhauser-and-professor-martin-parry-step-down-from-the-adaptation-sub-committee/

He will have more time for the Centre for Climate Change Economics of which he is Deputy Director, and is ably assisted by Simon Dietz, who is his co-director at the LSE Grantham Institute of which Stern is the Chair. Dietz was seconded to the Stern Review from the Tyndall Centre and has never looked back.

http://www.cccep.ac.uk/profile/samuel-fankhauser/
http://www.cccep.ac.uk/profile/simon-dietz/

By the way, Stern is at CCCEP as well:
http://www.cccep.ac.uk/people/

Of course the Stern association for Fankhauser goes back somewhat further when he was a colleague of his at IdeaCarbon, (as was of course the soon to leave IPCC, Christiana Figueres, senior figure at the IdeaCarbon offshoot, the Carbon Ratings Agency)

Sam is also an Associate Director at Vivid Economics, where again he is ably assisted by Simon Dietz:

http://www.vivideconomics.com/meet-our-team/sam-fankhauser
http://www.vivideconomics.com/meet-our-team/simon-dietz

Fankhauser's full Zoominfo is here: http://www.zoominfo.com/p/Samuel-Fankhauser/95944504

However, they don't seem to know about his involvement with GLOBE International, whose recent President was Lord Deben, chairman of the Climate Change Committee of which Fankhauser has been a member for so long.

http://globeinternational.info/the-globe-natural-capital-action-plan/acknowledgements


"GLOBE International kindly acknowledges the contributions of:

Mr Ian Johnson (Chair, GLOBE International Commission on Land Use Change and Ecosystems), Sir John Bourn (Senior Technical Advisor to GLOBE International and Former Comptroller and Auditor General of the UK and Head of the National Audit Office),

Dr Sam Fankhauser (Chief Economist to GLOBE International and Principal Research Fellow at the Grantham Research Institute on Climate Change at the London School of Economics ),

Dr Natasha Pauli (Scientific Advisor to GLOBE International and Conservation Policy Programme Manager, Zoological Society of London),

Mr Adam Matthews (Secretary General, GLOBE International)

Mr Chris Stephens (former Director, GLOBE International Commission on Land Use Change and Ecosystems).

The GLOBE International Commission on Land Use Change and Ecosystems was supported by the Global Environment Facility (GEF) and the United Nations Environment Programme (UNEP)."

Their offices used to be in London, I see they have now moved to Brussels. I wonder if they will be wanting the UK to Leave The EU?

You may remember Delingpole did a piece on GLOBE International at http://jamesdelingpole.com/2010/03/climategate-the-parliamentary-cover-up/. They have moved on considerably since then.

Feb 25, 2016 at 3:28 PM | Registered Commenterdennisa

When a social cost of carbon or something else is computed, they typically do not consider the counterfactual of the absence of it. For example, pollution from cars "kills" x people, but is not compared to life without cars when streets were filthy with horse manure and people were cold all the time in winter. No product is without some risk. Bathtubs kill people but it is better to be clean. Bacon kills but happy people live longer and bacon makes you happy.
Stern is just displeased that the answer is not alarming enough. His previous reports used a nearly zero discount rate which ignores how much benefit future generations get from positive economic growth.

Feb 25, 2016 at 3:38 PM | Unregistered CommenterCraig Loehle

It is a demonstration of cynical bad faith on the part of Lord Stern that he refuses to recognize the social benefits of carbon and only offers a caricature analysis of the alleged negatives.

Feb 25, 2016 at 3:53 PM | Unregistered Commenterhunter

@dennisa
Yeah, you would think that Stern knows about Fankhauser's work, wouldn't you?

In their recent paper in the Economic Journal to "honour" Nordhaus, Stern and Dietz write about the impact of climate change on economic growth but forget to refer to Fankhauser's work on that exact topic.

Feb 25, 2016 at 5:03 PM | Unregistered CommenterRichard Tol

This is, of course, a simplistic misrepresentation, but - hey - what else is new?


It's also interesting to see stochastic modelling being touted in a week when climatologists have been outraged by a suggestion that such an approach might be useful in their own field.

Craig,


For example, pollution from cars "kills" x people, but is not compared to life without cars when streets were filthy with horse manure and people were cold all the time in winter.

So is the only other option a world in which we go back to using horses and stop heating our houses. Here was me thinking it was possible to do better than that.

Feb 25, 2016 at 8:13 PM | Unregistered Commenter...and Then There's Physics

ATTP says,
"....Here was me thinking...."
A disproven assumption to be sure.
No one disputes that we might do better. But climate imperialism is making things worse, not better. Stern offers no information on alternatives except fantasy. He deceitfully claims only negative costs.
Similar to his nonsense discount rate he applies.
And of course the thoughtless climateers echo the message, in an empty can sort of way.

Feb 25, 2016 at 8:36 PM | Unregistered Commenterhunter

“So is the only other option a world in which we go back to using horses and stop heating our houses. Here was me thinking it was possible to do better than that …”.
=====================================================
Quite so, for instance extracting sun-beams from cucumbers perhaps.

Feb 25, 2016 at 8:47 PM | Unregistered CommenterChris Hanley

Stern says

As the 2015 Paris agreement on climate change made clear, we must achieve a net-zero carbon economy this century. Doing so will require policies that drive innovation, investment and entrepreneurship.

This is a normative statement. Any proper economist would know the distinction between the positive and the normative. Anyone who understood geo-politics would know that there is not one global economy, but a large number of interconnected economies. Unlike the models there is not one unitary omnipotent and omniscient decision-maker with climate as the No.1 priority, but nearly 200 governments with conflicting and changing priorities and varying levels of control.

Feb 25, 2016 at 9:02 PM | Unregistered CommenterKevin Marshall

Stern is also avoiding the fact that the Paris agreement (in Para. 17) admitted failure. To achieve the 2C target would require global emissions to be falling by 2030. The UNFCCC's own figures show that they will still be rising even if all the vague pledges are fully implemented. The UNFCCC's response (in Para 21) is similar to Stern's - go back to the models for more scary scenarios. For those in touch with the real world, the past failures of scary scenarios in form of tippling points should make us deeply sceptical of those like Stern who still believe in them. See for instance Lenton et al 2008, in particular Fig 1 with the major tipping elements. Most quietly forgotten due to a lack of evidence.

Feb 25, 2016 at 9:27 PM | Unregistered CommenterKevin Marshall

I care little how hard Stern tries and it must be said, his piffling tripe - tries me very sorely.

If, the basic premise is totally prejudiced, 'biased beyond belief' as I choose to call it. Then, what need is there, of in depth analysis? You grant his bonkers figures credence if you harp on about him and his half baked socio-economic creative, crackpot arithmetic.

As an aside.

It is one of the few times, perhaps ever, whence I have to disagree with Doctor Lindzen, in that, Economists should be ranked with soothsayers and tea leaf readers, whereas - weathermen or meteorologists to grant them their technical status - I have found to be quite knowledgeable and agreeable chaps and chapesses and pretty darned good at physics and stuff - yer know like er - scientists should be.

But Economists - nah.

Feb 26, 2016 at 1:22 AM | Unregistered CommenterAthelstan.

co2 will be reduced by lenr and parasites/clowns like stern will be reduced by voting for the likes of Trump

the latter has higher priority for co2 is plant food with hopefully some warming side effect plus extra humidity also beneficial.

time to flush turds like stern, nurse, slingo, harrabin..

Feb 26, 2016 at 2:04 AM | Unregistered CommenterVenusNotWarmerDueToCO2

ATTP; It's funny that your picking apart commenters comments rather than picking apart Stern's report.

Feb 26, 2016 at 5:03 AM | Unregistered CommenterGreg Cavanagh

"..Here was me thinking it was possible to do better than that.."

We'll soon find out since nobody is doing much but typically British procrastination....

Personally, I'd have made absolutely sure the alternatives were up to the job before getting rid of the tried and trusted but then maybe I'm just a typically conservative (small c) engineer. Maybe all we really need is more positive waves man.

Feb 26, 2016 at 1:49 PM | Unregistered CommenterJamesG

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