Charles Rotter
The Stern Review on the Economics of Climate Change was published 20 years ago today, and the Guardian’s environment editor Fiona Harvey marked the occasion early with a column under the headline “The climate crisis will destroy our economies – we learned this 20 years ago.”
Her verdict on how the review held up:
But Stern stuck to his analysis, and in the 20 years since it has been found sound – if anything, he underestimated both the rapidity of heating and economic consequences, and overestimated the cost of renewable energy.
No source is given for “found sound” or for “underestimated.” One part of the review’s economic consequences can be checked against two decades of bookkeeping, because Stern put a number on it. From Chapter 5:
The costs of extreme weather events are already high and rising, with annual losses of around $60 billion since the 1990s (0.2% of World GDP), and record costs of $200 billion in 2005 (more than 0.5% of World GDP). New analysis based on insurance industry data has shown that weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement.
The review then ran that 2% forward. Footnote 27 explains how:
Based on simple extrapolation through to the 2050s. The lower bound assumes a constant 2% increase in costs of extreme weather over and above changes in wealth and inflation. The upper band assumes that the rate of increase will increase by 1% each decade, starting at 2% today, 3% in 2015, 4% in 2025, 5% in 2035, and 6% in 2045. These values are likely underestimates
That is where the executive summary got its headline that “costs of extreme weather alone could reach 0.5 – 1% of world GDP per annum by the middle of the century.”
The “new analysis” was a white paper by Muir-Wood, Miller and Boissonade prepared for a May 2006 workshop at Hohenkammer, Germany, organized by Munich Re and Roger Pielke Jr. The workshop’s own consensus statement, five months before Stern published, said this:
8. Analyses of long-term records of disaster losses indicate that societal change and economic development are the principal factors responsible for the documented increasing losses to date.
11. Because of issues related to data quality, the stochastic nature of extreme event impacts, length of time series, and various societal factors present in the disaster loss record, it is still not possible to determine the portion of the increase in damages that might be attributed to climate change due to GHG emissions
Pielke laid out what Stern left out of Muir-Wood in a 2007 paper in Global Environmental Change:
What the Stern Review does not report of Muir-Wood et al. is that they find no trend in losses over the longer period 1950–2005 and that Muir-Wood et al. acknowledge that the trend that they find is “dominated” by the 2004 and 2005 hurricane seasons in the US. In other words, the trend is not global but the result of hurricane losses in the US.
https://doi.org/10.1016/j.gloenvcha.2007.05.004
So the 2% a year came from a 35-year window that ended with Katrina, and the review stacked a rising rate on top of it and called the result an underestimate.
Twenty years on, Pielke has now checked the projection against the loss data, using Munich Re, the source Stern relied on, and Aon as a second set. Starting each projection from the data available before the review, and leaving out earthquakes:
With Munich Re data, losses exceeded Stern’s projection in one year of twenty (2017). In 2025 they were 0.18% of GDP, versus a projected 0.41%. Since 1990 there has been no upward trend at all in total losses from weather extremes as a proportion of GDP.
Using Aon data, the story is the same: 0.22% of GDP in 2025 versus 0.46% projected, and below the projection every year since 2017.
https://rogerpielkejr.substack.com/p/the-stern-reviews-28-trillion-miss
The 2025 number is easy enough to check from public figures. Munich Re reported overall natural disaster losses of about $224 billion for 2025, 92% of them from weather. That is about $206 billion against world GDP of $118.4 trillion from the World Bank, or 0.17%, and that year included the Los Angeles fires at $53 billion, the costliest wildfire on record.
Added up over the whole period:
Over 2006 to 2025, the Stern Review’s projection implied $7.0 trillion in weather losses based on Munich Re’s data, in 2026 dollars. Actual losses were $4.3 trillion, $2.8 trillion less. Using Aon’s data, the shortfall is $1.5 trillion.
https://rogerpielkejr.substack.com/p/the-stern-reviews-28-trillion-miss
$2.8 trillion less than Stern projected.
Harvey’s column ends with the economics profession needing to catch up with Stern, and along the way it says “the supercharged El Niño threatens trillions of dollars in damages.” Which forecast of trillions would that be?
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Loss figures: Munich Re NatCatSERVICE via Pielke Jr., The Honest Broker, Oct 29 2026; Munich Re 2025 press release; World Bank world GDP (NY.GDP.MKTP.CD).
h/t Bjørn Lomborg
