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19 Nov 2008 : Column 79WH—continued
In response to the concerns that I expressed in that debate, I received a letter from the Minister that purported to rebut many of the critiques of Stern. The note itself struck me as deeply flawed, but to be sure I sent it to Professor Tol, one of the world’s leading experts, and Ian Little, the father of modern welfare economics and Nick Stern’s moral tutor at Oxford. Some months ago, they responded to me. They identified not only my concerns but a huge number of others. I will not detain the House by reading out so many of their disagreements with the Government’s three-page note. Their comments are so devastating that there is nothing left of it. They show that there is a complete misunderstanding by the Government’s own advisers of the Stern review itself. I am not surprised since the Stern review is so opaque and difficult to understand. Even the world’s leading experts took a couple of years to unpick it, so it is not surprising that they got it wrong. I will put both the
note and the responses that I have had in the House of Commons Library, so that others can look at them.
We are in the realm of deep theory and of trying to understand something known as the Ramsey equation when discussing discounting. The fact that the Government’s own advisers have failed to understand the matter should act as a warning to us not completely to restructure the economy on the basis of what can only be described as a very small band of people, led by Nick Stern, who have convinced themselves that more conventional discounting methods are mistaken.
The Stern review, of course, is riddled with a host of other contradictions. A central assumption of it is that the social cost of carbon is greater than the market price. The theoretical object of the trading scheme is presumably to ration emissions until those exchangeable rations trade at a price that can then rise to match the social cost of carbon. What is the appropriate price? If one looks very carefully one can find it, hidden away in the Stern review: it is $85 per tonne of carbon equivalent. That is on page 323. That was subjected to vigorous scrutiny at the Yale symposium. There, Lord Stern, faced by those who are not bamboozled by his intellectual pyrotechnics, appeared to retreat. What he said at page 65 is worth quoting, as it is the core of Government policy:
“The concept”—
that is the concept of the social cost of carbon—
“is a valuable one in analysis but much less as a guide to policy. That’s why in my presentation I didn’t lay a lot of emphasis on the social cost of carbon”.
That is a central plank of the argument. There are lots more like that. I shall allude to one more and then close.
There are already two Stern reports. The original Stern review, mark 1, suggests a reduction of 60 per cent. in carbon emissions. Less than three years later, mark 2 appeared, arguing for 80 per cent. cuts—an even more radical crash programme of proposed cuts. Yet on page 276 of the original report Lord Stern appears to disown what he subsequently came out with in the mark 2 report. He says:
“The lesson here is to avoid doing too much, too fast, and to pace the flow of mitigation appropriately.”
“great uncertainty remains as to the costs of very deep reductions. Digging down to emissions reductions of 60-80 per cent. or more relative to baseline will require progress in reducing emissions from...a number of areas where it is presently hard to envisage cost-effective approaches.”
I have one last remark with which to end. We will need to come back to the Stern review. The Government, and certainly the next Conservative Government, cannot possibly leave the issue and their policies to be based entirely on a report that has been so comprehensively rubbished by so many of the world’s leading experts. I know no precedent for the British Government to persist with such an approach, and I hope that they will reconsider.
10.32 am
Martin Horwood (Cheltenham) (LD):
It has been an interesting debate. I congratulate the right hon. Member for Hitchin and Harpenden (Mr. Lilley) on securing it; it is important. As a good Liberal, following the dictates of John Stuart Mill, I recognise that even if the whole of
humanity is of one voice and one person dissents it is important to hear that person’s views. Particularly given the right hon. Gentleman’s background in economics and physics, it is important to listen to his reasoned arguments; and they were reasoned—slightly more than those of some of his right hon. and hon. Friends. Some of the remarks of the hon. Member for Chichester (Mr. Tyrie) and the right hon. Member for Wells (Mr. Heathcoat-Amory) misrepresented the Stern report extremely. If I may quote two examples, the right hon. Member for Wells said that no account was taken of solar intensity in the Stern report; but one need only read to page 26 before solar intensity is factored in.
Mr. Heathcoat-Amory: I said nothing about that being in the Stern report. I was talking about the IPCC. Also, the point was nothing to do with solar intensity as regards heat or light; I was referring to the magnetic field and its fluctuations, and its effect on cosmic rays and therefore cloud formation. That is a completely different mechanism, which is not mentioned in the IPCC report even to refute it. That was my suspicion.
Martin Horwood: I think that the record may show that the right hon. Gentleman did refer to the Stern report in that context; but to suggest that Stern did not take account of the well known and well understood effects of solar radiation is to misrepresent him.
Reference has been made to Professor von Storch’s work. That also is specifically mentioned on page 6 of the Stern report. He mentions that it is superseded by subsequent and wider data sets that have been taken into account, for instance, by the US National Research Council, which in 2006, two years after von Storch, concluded that there is a high level of confidence that the global mean surface temperature during the past few decades is higher than it has been at any time over the preceding four centuries.
Mr. Tyrie: Will the hon. Gentleman give way?
Martin Horwood: No, I am sorry; time is very short and Conservative Members overran slightly.
I agreed with some of the points made by the right hon. Member for Hitchin and Harpenden. He rightly emphasised the importance of global warming for people in poorer countries, and emphasised that they would be hit hardest first, which I entirely agree about. He acknowledged the truth of the greenhouse effect based on simple chemistry and physics—an important concession that not all his right hon. and hon. Friends make. However, he seemed to cast doubt on the fact of global warming, towards the end of his remarks, by looking only at data from very recent years. He will be aware that to take the data of one decade, let alone one or two years, is much less important than to look at the overall trend. I cannot believe that he really disputes data of the kind presented in the Stern report from the Hadley centre, based on Brohan and others. They show clearly that over the past 30 years global temperatures have risen rapidly and continuously at about 0.2° per decade, and that that brings the global mean temperature to what is probably at or near the warmest level reached in
the current interglacial period, which began about 12,000 years ago. All the ten warmest years on record have occurred since 1990.
I have my criticisms of the Stern report, too, although they are rather different ones. It is over-optimistic in many respects. It is soundly based on IPCC data but, as I have mentioned in an intervention, the IPCC is itself quite conservative. In its search for consensus, it has ruled out impacts based on the melting of the Greenland and Antarctic ice sheets, which I think makes it over-optimistic. The text of the Stern report also highlights clearly the dangers of global warming above 2° C above pre-industrial levels and links those with high probability to an increase in concentration of CO2 in the atmosphere of more than 450 parts per million. However, it then concludes that a concentration much higher than that, of 550 parts per million, is in some way acceptable. I find that a strange discontinuity in the report.
I am aware of other criticisms. It was interesting that the right hon. Member for Hitchin and Harpenden commended the work of Professor Frank Ackerman to us. Unluckily for the right hon. Gentleman, I have read the work of Professor Ackerman and if the House will permit me, I shall quote at some length one of his criticisms of the Stern report. He states that
“the Stern Review and its well-researched background papers are consistent with IPCC and other reports. There is no hard evidence that Stern has exaggerated the extent of crisis. If there is a problem, it is in the opposite direction: on some important questions, Stern relied too heavily on existing economic research and models, including an analysis that gives low estimates of the probability and costs of catastrophic changes. While the text and diagrams of the Stern Review suggest that the risk of losing the Greenland ice sheet is noticeable at 2° of warming, and severe by 3°, the Stern economic model assumes no risk of catastrophic damages below a threshold that varies from 2° to 8°, with 5° the most common value. A model that took seriously the warnings about catastrophe in Stern’s text would reach even stronger conclusions about the need for immediate action to reduce emissions.”
I think that perhaps the right hon. Gentleman is being a little selective in quoting from Professor Ackerman.
In a sense, Lord Stern himself has now been added to the critics of the original Stern report. In a conference in April he referred to how he “underestimated the risks” and
“underestimated some of the effects”
“I think the damage associated with high temperature increases was underestimated.”
“The damage risks are bigger than I would have argued. Things like the damages associated with five degree celsius temperature increases are enormous. We could not be precise about what would happen to the world, what it would look like, but we can say that it would be a transformation. The last time we had temperatures like that, we had a world of swampy forests.”
In other words, if he were writing the report now he would have been even clearer about the costs of inaction and would have set the costs even higher.
The right hon. Gentleman referred to a footnote on page 142, suggesting that some of the evidence on which some of Stern’s conclusions were based was a little weak, yet pages 140 to 142 show three pages of scientific references and data on which Stern based many of his conclusions. He took account of many consensus views, including that of the IPCC. Members
who have suggested that Stern made rash or irrational conclusions underestimate the extent to which uncertainty and risk were carefully factored into his model. He actually takes a prudent view of risk. His model ran different scenarios a thousand times and averaged out the impact, so his view of uncertainty and risk is prudent and wise.
The right hon. Gentleman suggested that Stern’s economics were at fault, claiming that he used a very low discount rate that was far lower than that which people use in other circumstances. Of course, a different discount rate was used to factor in the effects of something that will have an impact not only for decades or centuries, but over millennia, and in relation to which the decisions taken now will critically affect the future outcome. He suggested that taking a future prediction of wealth in which people were only four times wealthier than they are now, rather than five times wealthier, was somehow rash, but that would be a 20 per cent. reduction in future gross domestic product, which would be an extraordinary economic cost, and not one that I am altogether sure the rest of his party would advocate.
Incidentally, the discount rate was also addressed by Professor Ackerman, who also concluded that Stern is broadly right. The discount rate is based on several factors, including the ethical factor that one values one’s great-granddaughter’s life as much as one’s own. Setting short-term economic advantage against the lives of future generations certainly suggests that the number for the so-called rate of pure time preference should be very low indeed—I think that Stern used 0.1 per cent. The other element of the discount rate is the assumed rate of economic growth. It now appears that Lord Stern, in assuming 1.4 per cent. growth, might have been rather optimistic.
I agree with the right hon. Gentleman about the Government’s inconsistent use of the discount rate, which I think has had a negative impact on decisions such as that relating to Heathrow, and I would like to repeat exactly the same question he asked about the use of the discount rate and where the Government now stand on it.
I will finish by giving one final conclusion from Professor Ackerman’s study. He claimed:
“A reasonable economic analysis of climate change requires a discount rate roughly as low as Stern's, in order to ‘see’ the future; a broad treatment of uncertainty, something like Stern's, to reflect current scientific knowledge of the problem; and rigorous examination of expected damages, which are likely to be even greater than Stern suggested. While no one is exactly right on every question, Stern is ‘much less wrong’ than most of his critics.”
10.42 am
Charles Hendry (Wealden) (Con): I congratulate my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) on securing the debate and for the constructive and thoughtful way in which he introduced it. It is typical of him to bring to the debate the expertise that he has gained from some of the highest levels of government, which explains the respect people have for him. I do not want him to get the impression that I am about to agree with his speech in its entirety, or even in its majority, but it is important to put on record his background and the expertise he brings to the debate.
I certainly agree with him about the importance of rigorous assessment and with the Karl Popper approach to such things, which suggests that we will not carry public opinion if we are not open to challenges on the argument or to having a debate about the issues and the basis on which we introduce policy proposals. We can only carry public opinion if the public are convinced by the arguments, which is one reason why I tabled an amendment to the Energy Bill Committee proposing that customers should be shown the exact cost of the green element of their electricity on their bills. If they pay £80 or £90 a year, they should know what that green element is, so that they can have an informed debate about it, rather than feeling that some of the key information is being hidden from them.
We should not, however, use that ongoing debate as a reason to put off action. We are all, as politicians, on a journey, and where we start and end is different for each of us. I know that my right hon. Friend the Member for Hitchin and Harpenden, just a few years ago, was on the other side of the debate. He was one of the signatories of early-day motion 178, as many of us were, which stated that
“climate change is a threat to civilisation”
“the cross-party agreement in favour of major cuts in greenhouse gas emissions, and particularly in carbon dioxide emissions”,
and called for the introduction of a climate change Bill. My right hon. Friend’s position has moved as different arguments have been put forward, but at the same time many of us have moved in a different direction because of the evidence that we have seen.
I am persuaded that we have seen a non-linear increase in global temperatures, and I understand that scientists agree that, in the past 2,000 years, the world’s temperature has never been higher than it is today and that that increase cannot be explained by natural causes. I have seen good explanations for some of the contradictory evidence that has been put forward. My right hon. Friend the Member for Hitchin and Harpenden commented on snowfall, and snow is falling in Antarctica, rather than the ice that should be developing. Snow should not fall there, because the temperature should be so low that snowfall is impossible, so that is evidence that the temperature in Antarctica is rising.
We should be well aware of the contribution that man is making to that change. We contribute 26 billion tons of CO2 to the world’s atmosphere every year, half of which comes from energy generation. That figure is 100 times larger than the CO2 emission from volcanoes, which some people regard as an explanation for the rising levels of CO2 in the atmosphere. It cannot be good that we are producing so much CO2, and it should be our intention to try to reduce it.
My concern about the approach taken by my right hon. Friend the Member for Hitchin and Harpenden is that, although he delivered it in a balanced way, it could be used as a justification, not for doing less, but for doing nothing. If we want action to be taken, we need to move forward, and we cannot be put off taking action that needs to be taken early. While we have heard discussions this morning about the discount rates, the key message of the Stern report for me is that the highest cost of the damage resulting from doing nothing is significantly higher than the highest possible cost of
mitigation. We return to the argument about insurance, and whether it is sensible to take up 1 per cent. insurance cover, just as we would to protect our homes from damage and fire, even though the risks are less than one in 100, and to take a similar approach to insurance for our planet and livelihoods and for those of our children and grandchildren.
I certainly subscribe to the precautionary principle. If people look back on this debate in 50 years’ time, which is unlikely, and if we were wrong about the evidence on climate change, they will say that we still did no harm to our world by trying to mitigate the effects of man’s emissions, but if they decide that we were right about the concerns, they will be very angry indeed that we did not take action when we had the chance. The consequences of inaction are enormous: there will be economic damage and massive extra costs in trying to put right the consequences of climate change. We will see population transfers as people move away from parts of the world that have become too hot, which will lead to conflict and the resultant huge human consequence. It will also lead to the spread of disease. We need only look at the introduction in the UK of bluetongue disease, which is carried by flies that simply would not have been able to live here several years ago, to see the consequences of climate change.
We should also see this as an opportunity. People talk about the costs of combating climate change, but every time I talk to business it says that this is one of the most exciting opportunities that it sees. We can even see that in the energy approach and in the contribution that solar power can make, for example, as a huge amount of expertise and genius is being put into bringing down the cost of solar power. Such action goes directly against the argument that my hon. Friend the Member for Chichester (Mr. Tyrie) made, as the implications of developing solar power for the poorest people on our planet are massive. We can use the power of the sun in the Sahara through concentrated solar power to make endless, cheap energy available to people in sub-Saharan Africa, and there is also scope for the desalination of water, which could make a fundament improvement to their quality of life.
Mr. Tyrie: Will my hon. Friend give way?
Charles Hendry: No, I will not do so, because I have only one minute left. I hope that my hon. Friend will understand and that we can discuss this subsequently.
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