In early 2007, Sir Nicholas Stern, the former chief economist for the World Bank, announced that global warming could create a disaster “on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century.”1 In his 670-page report, Stern also put the so-called crisis into financial terms. “Overall costs and risks of climate change will be equivalent to losing at least 5 percent of global GDP each year, now and forever.”
The announcement made front-page headlines around the world and inspired leaders such as Tony Blair, then the British Prime Minister, to call for immediate action to stop global warming. Blair called it “the most important report on the future ever published by this government.”
Stern’s announcement made for exciting news, but there was just one problem with it: It was completely wrong. As we will discuss, Stern’s report shows why the models and forecasts that exist today are not reliable enough to serve as the basis for a trillion-dollar investment decision that will adversely affect the lives of billions of people for decades to come.
Stern based his conclusions on the work of Richard Tol. Tol is a professor at Carnegie Mellon and Hamburg Universities. He holds a PhD in economics, is an expert on climate change, and is involved in all three of the working groups at the United Nations Intergovernmental Panel on Climate Change (IPCC).
Most significantly, Tol doesn’t agree with Stern’s conclusions. In the Financial Post,2 Tol calls the 5 percent GDP figure “preposterous” and he told the BBC3 that if one of his students turned in such a paper, Tol would give him an “F.”
Tol contends that Stern took his research out of context to make the case for global warming seem more dramatic. For example, Tol has written that the potential costs of CO2 emissions could range as high as $29 per ton, but that the actual costs are likely to be substantially smaller than $14 per ton. But, Stern cited only the $29 per ton figure.
Tol told the BBC,4 “Stern consistently picks the most pessimistic for every choice one can make.”
For instance, Stern quoted a study by Tol that warned of millions of lives at risk if sea levels...
