Some Implications of the Stern Report

A little while ago the Stern Report on the Economics of Climate Change (link courtesy of Debunkers) was released. The bottomline of the report was that the negative consequences of global warming can be averted by giving up about 1% global GDP growth for each and every year for the next 100 years. At first glance that doesn’t sound so bad. But as Ronald Bailey notes, when we are talking about long time spans and growth rates we are in reality talking about gigantic numbers. Bailey uses the case of Bangladesh to illustrate his point. I’m not thrilled with Bailey’s example in that he assumes economic growth rates for places like Bangladesh will hold for the next 100 years. So I’ve taken his example and lowered the growth rates a bit, but this doesn’t change the qualitative nature of the results.

  1. Assume the “Do Nothing Growth Rate” for Bangladesh is 4.5% per year on average for the next 100 years.
  2. Assume the growth rate under the recomendations of the Stern Report is 3.5% on average for the next 100 years.

What are the implications in terms of GDP for Bangladesh (using Bangladesh’s current GDP of $55 billion).

  1. GDP is $4.9 trillion after 100 years.
  2. GDP is $1.8 trillion after 100 years.

In other words, the Stern Report would chop of 2/3rds of what Bangladesh’s GDP if nothing is done.

Of course, one could argue that the Stern Report also predicts the following losses due to global Warming is nothing is done,

Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.

Frankly I find this kind of prediction to be rank scare mongering. If global GDP growth is anything less than 5%, on average, for the next 100 years, and nothing is done then we are on a growth path were global GDP will be only 61% of what it is today. If we use the higher bound there will be no global GDP. In other words, if the Stern Reports worst case scenario is correct then everything in the world is wiped out. Every house, ever car, every road, every brick, every fork. All gone. Not one single thing in our current global economy will be left. To put it simply, I think there is a problem with your “standard” economic models.

FILED UNDER: Economics and Business, Environment, Science & Technology,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. The numbers work out for every ones economy. If you assume GDP growth is lessened by 1% from an average of 3.5% to 2.5% for 100 years, then you would end up with a GDP that is only 37.9% than you would have had (or roughly the 1/3 what it could have been).

    The way I read him, he is saying that you lose 5% of GDP every year best case and 20% every year worst case. Which would mean that after 100 years (assuming that is when the deleterious effects start cropping up), it would take between 20 and 86 years to go down to 1% of our current GDP.

    We can’t predict the weather for next Tuesday, but given the inconsistent models on global warming we should destroy 2/3 of our 2106 A.D. economy. Can’t wait. Don’t fund any one who questions the evidence. Just lets start destroying 2/3 of the economy immediately. Such is the posture of the “reality based” community. Don’t wait for more facts or information, just wreck the machines now. Luddites.

  2. Steve Verdon says:

    YAJ,

    I think the “now and forever” part means we should start seeing these impacts now. However, since it is an average it is possible that we wont see growth negative till later on.

  3. spencer says:

    The alternative you should look at is that 95% of Bangladesh is less then 25 feet above sea level. It has two of the greatest river systems in the world emptying into the ocean on its coast. The miracle rice developed for the region worked because it could survive 6 feet of flooding — pretty much the norm — with its head still above water and the stalk was strong enough to still support the head after the seasonal floods withdrew.

    Under reasonable assumption that global warming would cause a modest rise in average sea levels Bangladesh would lose up to half of its land to permanent flooding under salt water. Moreover, much of its remaining fresh water would become brackish.. Consequently, the alternative for Bangladesh is not slower growth of about 1% per annnum. Rather, it is about a 50% absolute drop in GDP.

    Moreover, remember this drop in land area would occur in a country with the second highest population density in the world, Belgium is the only one with a higher population density, but
    unlike Belgium, Bangladesh is not an urban country.

  4. Christopher says:

    Steve, 2 things:

    1. Why can’t you write?
    2. Why can’t you do simple math?