Submitted by Eric Worrall
Lord Stern, the British Academic who prepared the “Stern Review” on global warming for Prime Minister Tony Blair, has just claimed a carbon price of up to $260 / ton is required to prevent dangerous global warming.
“The risks are in fact likely to be so large that a globally coordinated carbon price of $US32-$US103 ($34-$110) per tonne of emissions is needed as soon as 2015 to prevent the temperature increase from exceeding 2 degrees of pre-industrial age levels, said Lord Stern and co-author Simon Dietz, from the UK’s Grantham Research Institute.
Within two decades, the carbon price will need to almost triple in real terms to $US82-$US260 a tonne, the two researchers say in their paper to be published in The Economic Journal.”
Lord Stern’s “Stern Review”, prepared in 2006, has been heavily criticised since its release, for making some unjustifiable assumptions.
For example, according to “The Economist”, Lord Stern used a near zero discount rate when calculating the impact of future harm.
The effect of using such a low discount rate is to make problems which occur in the distant future as important in terms of the calculation as problems which occur today – for example, if your report predicts mass starvation in 100 years, a near zero discount rate could be used to justify creating global hunger today, to ward off the predicted future risk, if the future casualty rate was greater.
Non-discount of future risks is wrong for all sorts of reasons, not least because we have no idea of what advances 100 years of technological progress will deliver.
Economic forecasts of the past, such as the Great Horse Manure Crisis of 1894, are often a source of hilarity in modern times, due to their rather outdated assumptions.