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Global warming 4

December 4, 2011

The costs of averting global warming?

In his original report Stern suggested that these would be an ongoing annual 1% of world GDP, although more recently he has revised this figure up to 2%.   Both huge numbers, but on the face of it worth spending if they prevent 5% annual GDP damage down the line. Again sceptics have plenty to dispute.

First Stern’s 1% estimate was lower than other forecasters but OK, his revision up to 2% brings him more or less in line.  More importantly, the costs of prevention happen now, while the supposed benefits occur sometime in the future.  The benefits only appear worthwhile if we accept Stern’s very low discount rate.  At higher discount rates we should invest the money, get richer, and be better placed to adapt to the warming when it comes.

Finally, Stern’s costs of mitigation, are only worthwhile insofar as they actually prevent global warming’s harms.  But no-one believes they will prevent all harm, least of all Stern himself. He believes many bad things are already inevitable. So even on Stern’s disputed figures we are being asked to invest 2% now, not to prevent 5% damage in future, but to prevent some fraction of 5%.

Here’s the iGreen take. Sacrificing 2% of GDP now to prevent 5% of damage in future, only works at an implausibly low discount rate.  With sensible discounting, the possibility of adaptation, and money spent now preventing only some harm, such a large investment in mitigation now is a poor deal.

Tomorrow – who should pay?

Jim Thornton

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