Nicholas Stern: We still haven’t explained how bad climate change is going to get

In 2006, the prominent British economist Nicholas Stern issued a groundbreaking report on the potential impacts of climate change for the British government. Looking back after eight years, Stern says, "From the point of view of science, the Stern Review underestimated the risks. Actually, badly estimated the risks. The story wasn’t strong enough in terms of describing the risks we faced."

Stern was speaking at an event at IMF headquarters yesterday with Managing Director Christine Lagarde — who has recently come out strong on this issue, telling an audience at Davos that “Unless we take action on climate change, future generations will be roasted, toasted, fried and grilled.” — and World Resources Institute President Andrew Steer. In his speech, Stern called for economists to develop new models that can more accurately explain the potential impacts of climate change, particularly the damage caused by more frequent extreme weather events:

Another aspect of our failure to model very well is that extreme weather events have lasting impact. If you knock down a capital structure then you have knocked down a capital structure and you are then less productive as a result afterward. Those lasting destructions don’t come into the models. Essentially you get the problems occurring year by year. They’re ahistorical in many ways in terms of the economic impact.

Some close friends in Pakistan have tried to explain to me what happened with the major floods in 2007 and argued that in big parts of the country, development was put back 20 years. If you put back development 20 years ever 10 years, you’re going to be going backwards. Theses are not the kind of effects that the scientific model, at the moments, allow us to speak about very clearly.

I think what we need is in many ways, a new generation of scientific models, some of which start with the question — what is it that affects human lives? Extreme weather events, desertification, inundation: These things really effect human lives. Let’s focus on the probability and magnitude of those kinds of events.    

What we find often is people focusing the models on bits they can understand. They’ll tell you that with [temperature rise of] 4 degrees Celsius, the agricultural output of Northern India may go down by 20 percent. That’s relevant, but it doesn’t take into account the rewriting of the flows of the rivers of the Himalayas, it doesn’t take into account the destruction of the monsoons. It leaves out, in other words, most of the things that are important. Those of you who know India well know that agricultural output is only about 15 percent of GDP. If you take 20 percent of 15 percent, you’ve knocked GDP down by 3 percent. But that’s just the agricultural impact. We don’t model as well on the service economy. So you end up with rather trivial statements on a radical transformation.

Stern explains what he sees as the shortcomings of his review here.