I am grateful for this opportunity to discuss the Stern report, two years after its publication. I came to the subject when I was chairing a policy group. The globalisation and global poverty group was considering ways of trying to improve the lot of people in developing countries who live on a fraction of the money that we have in the developed world. We were conscious that climate change was likely to have a more adverse impact on them than on anyone else. Yet, by definition, people in those countries cannot be held to blame for carbon emissions, their emissions per head being a fraction of those in the developed world. However, they are likely to suffer most and are already experiencing climate change, which in many areas has had adverse consequences, but they have the greatest need to use energy to raise their living standards.
I accepted and took it for granted that we in the developed world should bear the brunt of the costs of mitigating climate change and helping people to adapt, and it was with that outlook that I opened the Stern report when it was published shortly before my report went to press. I opened it at the section on development. The first page says that studies show that the effect of global warming by the middle of this century could be to reduce crop yields in India by up to 70 per cent., and then gave more details. That rang a bell, because I had been examining agriculture in India and other developed countries. When I read the footnote, I found that, sure enough, it was a study that I had seen. It showed that the impact of climate change, if there was no adaptation, on one species of grain could be to reduce its yield by 70 per cent. It also showed that climate change could increase yields of other varieties of the same grain by up to 15 per cent., but that was not in the Stern report. When I read the footnote, it gave the exact source, but said that it assumed no change in behaviour.
That made me suspicious of the Stern report. It showed one side of the picture—the downside—but deliberately ignored the upside. I am not saying that the upside cancels out the downside, but that is not a proper way to approach the subject. In his review, Professor Stern makes much of the importance of the peer review process, but his report was not subjected to peer review, and it is time that it was, or at least to a common or garden review in the House.
I think I have found the reference to India in the Stern review—[Interruption.] It is on page 97 in my version. It refers to a recent study that predicts up to a 70 per cent. reduction in crop yields by the end of the century, but that is for groundnuts only. What about all the other crops?
No mention is made of the fact that the reference is to groundnuts only. One must read the footnotes to find that information, and then look up the reference. Is that not an example of the appalling opacity of the document?
It is, and that is why, if it had been subjected to peer review, it would not have been passed fit for publication.
My overall position on global warming is that, as a physicist—I studied physics at Cambridge—I am not one of those who deny that carbon dioxide emissions heat the planet. They do have that effect, although there is less certainty about how much the complex feedback effects that climate models seek to replicate may amplify the comparatively modest effect of increasing CO2 and other greenhouse gas emissions. None the less, in my view it is wise to take measures to prevent and to adapt to global warming, and it is sensible to try to assess the costs and benefits of action and inaction to ensure that we adopt the most cost-effective approach. I was hoping that the Stern report would help us in that process, but I am afraid that it does not offer us much help in the analysis of the science or the economics.
I shall begin with economics, because the review is by an economist and purports to be a review of the economics of climate change. Rather surprisingly, the economics, above all, have come in for most criticism. Professor Stern's conclusion is that we can prevent or mitigate the impact of CO2 and other greenhouse gas emissions, that it will cost relatively little and that the cost of inaction far exceeds those of decarbonising the economy. In reaching that conclusion, however, he had to adopt several rather unusual assumptions, and he has been criticised for, among other things, using low discount rates and far-distant horizons, making high but unspecified estimates of the impact cost of global warming and low and optimistic assumptions about mitigation costs, and assuming that little adaptation takes place. Above all, his use of low discount rates was criticised. The report is not explicit about the rate that he uses, and that came out only in subsequent discussion and debate. It then emerged that his basic discount rate for future benefits from mitigating the impact of climate change is 1.4 per cent. per annum. That is far lower than that used by other people and in other circumstances. It has two unsatisfactory consequences.
First, as Professor Stern projects the benefits of mitigating global warming far into the distant and indefinite future, using a low discount rate gives great weight to supposed changes that will not occur until centuries ahead.
I congratulate the right hon. Gentleman on securing this debate on what we all agree is an important subject. Is it not possible to become overly technical about discount rates, and does the issue not boil down to the fact that if one cares a lot about the future one is prepared to do rather more to avert catastrophe, and if one does not care so much one is prepared to do rather less? We believe that it is right to do more.
The right hon. Gentleman is right to say that there is an ethical dimension. It is perhaps that dimension on which we in the House should focus and reach our own conclusions. I shall return to why Professor Stern uses those discount rates, and whether the right hon. Gentleman's assumption that the matter is simple is true.
Professor Nordhaus said that if one uses the same methodology as Stern, one can calculate that half the benefits of mitigating climate change, which would be taken into consideration under his methodology of a low discount rate and far-distant horizons, will not occur until after 2800. Even if he uses higher discount rates and other scenarios, it is hundreds of years ahead. There is something rather vain about assuming that we know what the world will be like that far ahead.
A second consequence relates to the question that I have just been asked. Professor Stern is saying that if we do nothing, by the end of this century, people's incomes will, on average, be 20 per cent. below what they would be if we were to stabilise greenhouse emissions to 450 to 550 parts per million between now and then. However, he is still assuming that people will have incomes that are a multiple of what we have now. He is saying that if we do nothing, people's incomes will, for example, be four times what they are now. However, if we take strenuous and costly action, their incomes will be five times what they are now. In other words, we are being asked to make sacrifices now so that, in nearly a century's time, our great-grandchildren will be five times richer than us—instead of only four times richer. When challenged about that, Lord Stern says, "Well, we could've used different assumptions that said we value the extra income from rich people far less than we value extra income from poor people now in the world. But, since we don't believe in redistribution in the present, we shouldn't believe in treating rich people differently in the future from poor people now."
Labour Members who do believe in redistribution will find Lord Stern's dismissal of normal discount rates even stranger than I do. The best analysis of these issues that I have found has been published by Friends of the Earth, which commissioned a report on the Stern review from Professor Ackerman. That is an excellent report. Clearly, Friends of the Earth's sympathies lie with Professor Stern, and I am sure the attitudes, conclusions and political philosophy of Professor Ackerman are different from mine. However, he has produced an excellent report and I commend it to hon. Members because it is so objective and fair. It leaves one pretty free to make up one's mind on the issues that he clarifies. Even he concludes that Stern's methodology is open to criticism:
"A balanced conclusion might be that Stern demonstrates that 1.4 per cent. is among the plausible discount rates — and that such low rates have profoundly different implications from rates like 5-6 per cent., used in many other analyses."
He acknowledges that such a rate is rather unusual—although it is plausible. However, it is important to note that it leads to different conclusions.
It is equally important to note that the Government have effectively repudiated the use of such a low discount rate. They published an impact assessment on the Climate Change Bill to inform the House during the debate on the Bill. Sadly, hon. Members chose not to refer to the impact assessment. Minister's did not refer to it; it was not referred to in Committee, and it was not referred to in debates, other than by me. However, when I asked what discount rate the Government were using to assess, compare and contrast future costs and benefits, it emerged that they were using the standard Treasury discount rate of 3.5 per cent. a year, falling to 3 per cent. after, I think, 60 years. That is still far lower than the rate used by most people who do commercial feasibility studies. The Government failed to mention or address that fact during debates. However, the fact they are using a more normal discount rate leads them to a different assessment of the relative balance of costs and benefits from that reached by Professor Stern.
In the impact assessment, the Government refer to excluding transitional costs, which they put at between 1.3 and 2 per cent. of gross domestic product up to 2020, and excluding the effects of driving businesses away from this country to overseas, where they will continue to emit the same amount of carbon dioxide—although we will receive none of the economic revenues generated by them. The Government make the heroic assumption that industry adapts instantly and perfectly with full knowledge to use the best and most efficient technology to reduce carbon emissions. Even making such an assumption, the potential cost of this country meeting its former target of a 60 per cent. reduction in emissions is £205 billion. Yet the same report from the Government shows that the maximum benefit from reducing the amount of global warming via the programme enshrined in the Climate Change Bill is £110 billion.
In short, the potential costs are nearly twice the maximum benefits. That was when the target was still 60 per cent. When I asked the Government to update their estimate to take account of the fact that we were increasing emission targets by a third to 80 per cent., they said that they would do so only after the Bill has received Royal Assent. So, we are not to know the cost of what we have voted for until the measure is enshrined in law.
I have three questions for the Minister. First, does she stand by the discount rate used by her Government, or does she think that that rate was wrong and Professor Stern was right? Secondly, if they do stand by the discount rate that they used, why do they still quote the conclusions about the balance between costs and benefits in the Stern report and never mention the costs and benefits in their own impact assessment? Thirdly, when will we receive a revised impact assessment telling us how much additional cost and benefit we can expect as a result of increasing the emissions target from 60 to 80 per cent?
A lot hangs on this because, even if we accept Stern's forecasts for global warming, there are three possible different strategies. In general, one would expect to use a balance of the three, but that balance will be determined by the analysis of costs and benefits. Those strategies are a straight reduction in emissions by setting targets for the country and particular sectors; helping the developed world adapt to aspects of climate change that affect it most directly, severely and adversely; and a massive programme of research into alternative ways of reducing emissions and generating energy in a carbon-free fashion. The way in which we distribute resources between those alternatives will depend heavily on how we discount future costs and benefits.
I would like to return to the science of the issue. I mentioned that I studied physics and natural sciences at Cambridge before studying economics. Subsequently, after I had left university, I also studied statistics. The fact that I have some knowledge of physics does not make me a climate scientist; it simply means that I can understand the basic physics that is involved. More importantly, I understand the scientific method. I and my generation were taught the Karl Popper approach to science, which is that one should constantly confront the prediction of our theories with the facts and if the two are not in accord, we should modify the theory. That is not the approach taken by Professor Stern or his disciples. His approach is not so much that of Karl Popper as that of the great German philosopher Hegel, who believed that it was possible to deduce all scientific truths from first principles. When his disciples pointed out to him that his theories were refuted by the facts, he replied, "So much the worse for the facts."
That is the general approach taken by many of those who belong to the alarmist school of climate change—not least, Professor Stern himself. The simple fact is that, since the beginning of this century, the average global temperature has flatlined; indeed, over the past 18 months it has fallen back, and according to the satellite measurements of temperature, it is now basically back at the level it was in 1979, when such measurements started to be taken. Professor Stern ignores that and, throughout his report, refers to continual global warming. However, global warming has not continued. Even Adair Turner, who on all other topics is a model of objectivity, ignores recent developments when discussing climate change, in the section of his letter to the Treasury summarising recent developments. The facts show that the world has not been heating over the past decade. The response is, "So much the worse for the facts." While we were passing the Climate Change Bill, based on the assumption that the world was becoming hotter, I mentioned in a point of order that it was snowing outside in October for the first time in 70 years. I was told that I should realise that exceptional cold was a consequence of global warming—so much the worse for the facts.
The recent period of global cooling does not itself disprove the greenhouse effect. The greenhouse effect is a scientific fact. Other things being equal, an increase in carbon dioxide and other greenhouse gases in the atmosphere will raise the temperature. However, the recent period of cooling does suggest that either manmade global warming may be smaller or that the impact of other factors may be greater than climate models have so far assumed. In those circumstances, the climate models should be adjusted; the facts should not be ignored.
The second aspect of the strange approach to science taken by Professor Stern is that he applies a one-way filter to new evidence. Even though he asserts that the science is settled, he accepts that it can change in the light of new evidence. Indeed, he says that since he published the report, lots of new evidence means that the situation is much more serious than he thought and we should raise our targets accordingly. The point about the one-way filter is that Professor Stern and his disciples will accept evidence of change only in one direction. A one-way filter is applied, so that only studies suggesting that the situation is more dire than we had previously believed may be cited. Where climate science is concerned, the theme song seems to be "Things can only get worser".
It is right that we should publish, look at and examine any new evidence that shows that the situation is becoming worse. Equally, we should examine and take on board any evidence that shows that it is not or that the sensitivity of the climate to carbon dioxide emissions may be less than the models—certainly the most extreme models—have suggested, but that was not done in the Stern report and it has not been done by Lord Stern since.
I am grateful to my right hon. Friend for securing this long-overdue debate. Does he agree that there may be a message for the Government in the words of our right hon. Friend the Leader of the Opposition, who said yesterday:
"Politicians shouldn't be stubborn and cling to beliefs if circumstances render them obsolete."
That is absolutely correct. It was Lord Keynes who said:
"When the facts change, I change my mind. What do you do, sir?"
Well, if the facts suggest modification, not abandonment, of the quantitative assessment of global warming, we ought to modify our assessments accordingly. We hear a lot, rightly, about melting ice in the Arctic, but little or nothing about the increased ice cover in the Antarctic or, indeed, in the Arctic over the past year.
The third strange aspect of the scientific methodology adopted by Professor Stern and his disciples is that he believes that truth in science is determined by majority verdicts and once a majority has spoken, its verdict should not be questioned. I remember that, back in the 1930s, the German Government got 100 physicists together to sign a declaration stating that Einstein's theory of relativity was false, to which Einstein replied: "If I was wrong, it would take only one scientist to prove it." Science is not a question of adding up majorities. That is particularly true when one moves from science to statistical models, and this is the last aspect that I want to dwell on.
As I said, I accept the science of the greenhouse effect. Carbon dioxide and other greenhouse gases, not least water vapour, absorb outgoing infrared radiation and reflect it back to the earth, while allowing incoming radiation at higher wavelengths from the sun to pass through. That is the core greenhouse effect. It can be quantified mathematically. We know that a doubling of greenhouse gas emissions—CO2—would bring about a 1.2 to 1.3° change in the temperature of the climate by the direct impact of the greenhouse effect. There is little dispute about that. There is little dispute, either, that we have already had 0.7 of that 1.2°, because the effect is logarithmic; early increases in CO2 have a far bigger impact than later ones.
That is the science. Beyond that, one goes to statistical modelling. I used to do statistical modelling to try to fit models to complex economic systems in much the same way that the climate scientists try to fit complex models to the complex climate system. I know how difficult that is to do well, not because it is difficult to find a good fit between a model and reality, but because if there are many unknown parameters, it is all too easy. A famous mathematician said, "Give me four unknown parameters and I'll make my model describe an elephant. Give me five and I'll make it wave its trunk." There are so many unknown parameters that it is very easy to fit a climate model to the data in the past, but very difficult to get it to predict accurately the future. I think that it was Milton Friedman who said, "There is only one perfect correlation that comes out of statistical analysis, and that is between the prejudices of the model builder and the conclusions his model incorporates." That is true of many climate models, and it is time that we confronted the facts and asked the people who rely on those models to explain why they have not predicted, for example, the past decade of comparative temperature stability.
Equally, we should question those who deny the science and are critical of the models. I have noticed how some people on the sceptical wing of the argument who have always been very sceptical of the climate-alarmist prediction based on their models latched on to a recent German study that tried to explain the period of cooling or comparative stability that we have had and went on to predict cooling for another 15 years. We should be as sceptical of that as we are of other positions. We simply do not know to what extent the feedback mechanisms will amplify the basic modest impact of carbon dioxide emissions in reflecting heat back on to the earth.
I hope that we will hear from the Minister today the Government's current views on the Stern report. Do they accept it as a valid analysis of the costs and benefits of taking action to mitigate climate change, or is it superseded by their own report? Do they have any explanation of why the science has not predicted recent developments? Are they undertaking work to adjust climate models and climate predictions in that regard? Are they reconsidering the balance of investment that we should make between mitigation, adaptation and research and development? Unless and until we receive answers to those questions, the Stern report will stand open to question and the Government will have to share the—
I am grateful to the right hon. Gentleman for giving way as he is bringing his remarks to a conclusion. Given what he has said, does he not accept that, given the catastrophic consequences of global warming, the precautionary and sensible thing to do is to act now to avert possible catastrophe—he may argue about how likely that is—because the consequences of not doing that means that it will be impossible to act effectively in future? In other words, should we not err on the safe side?
It is sensible to take out an insurance policy against global warming. We do not know how much of it there will be, but there will be some. We do not know how damaging the consequences will be, but beyond a certain point they will be negative. We do not know whether the consequences will be catastrophic, but a theoretical case suggests that, in certain circumstances, there could be major damage. However, that must be balanced against the costs. The route that we are offered might cost this generation more than it will save future generations. If we stop helping poor people to raise their living standards to our level, by concentrating on people who, in any case, have benefited from a century of growth, and try to achieve a yet bigger multiple of living standards higher than our own, that is not a sensible thing to do.
The Ackerman analysis that I mentioned is critical of Lord Stern's attempts to try to find and cost large future damages and catastrophes. He cites a range of recent disasters and assumes that instead of being rare and random events, they will almost become the norm in the centuries ahead. However, the costs are hard to assess. For example, he puts the costs of Hurricane Katrina at £135 billion, but that loss of lives and property could have been prevented for a small amount, regardless of climate change—if indeed that had anything to do with Hurricane Katrina.
Our path is determined by an assessment of the costs and benefits. Although it is sensible to take out an insurance policy against future damage caused by global warming, it is foolish to take out such a policy if the premiums are greater than the value of what we seek to protect. The Government analysis says that the £205 billion premium that we could be required to pay to mitigate climate change is greater than the £110 billion of benefits which they assess will flow from that. We must answer these questions sensibly rather than sidestepping them. It is not enough to say that, because the facts are inconvenient and the questions difficult, so much the worse for the facts, we will not bother to answer the questions.
It has been fascinating listening to my right hon. Friend Mr. Lilley. He is a voice of reason in a debate that increasingly has become an article of faith. The evidence in the Stern review relied heavily on the intergovernmental panel on climate change. I have read the bulk of both reports and I am aware of being in the presence of something similar to a secular religion with its articles of faith and its heretics. I do not classify myself as a heretic, but like my right hon. Friend I am always alerted by the absence of something in a report.
I am an amateur astronomer and chairman of the all-party group on astronomy. In a strictly amateur way, some of us have studied the phenomenon of climate change and global warming from a slightly different perspective. Some professional astronomers advance a theory that links fluctuations in terrestrial temperatures to variations in the sun's magnetic field. That has nothing to do with sun spots as is sometimes thought—it is due to the influence of that magnetic fluctuation in the incidence of cosmic rays on the earth's atmosphere, which in turn affects cloud cover. There is a correlation—which does not necessarily imply causation—between the fluctuations of the sun's magnetic field and terrestrial temperatures in the past. I do not claim that as an explanation, but it is a theory that should at least have been addressed by the IPCC, rather than being entirely excluded.
All scientific theories are provisional, and as my right hon. Friend eloquently demonstrated, they must adapt in the presence of new facts. Alternative theories must be examined rationally. I do not find that approach in the IPCC's report or in the Stern review that is based on it. Nevertheless, I believe that precautionary measures are appropriate, provided that they are proportionate and founded on reason.
I, too, have misgivings about the discount rate used by Stern. That has been well described by my right hon. Friend and I will not repeat his arguments. However, it is odd to use a discount rate of 0.1 per cent., which to my knowledge has never been used before by the Treasury. That figure is distorting against the use of higher and more normal discount rates, and it tips the argument in favour of present pain to try to ensure future benefits. In practice, it means that we would impose very high costs on poor people today in order to make rich people even richer in the future. That needs explanation.
Stern's whole approach is market-based, and in that I do not disagree with him. However, it is puzzling because measures flowing from that type of argument do not seem to do the same thing. On
Even more puzzling is the fact that the Conservative party appeared to accept the EU regulations. Subsequent negotiations have taken place and the regulations have been slightly relaxed—at least, the time period to introduce them has been extended. That is no thanks to the British Government who took a much harder approach.
Following on from the Stern review, we are imposing on our economy and manufacturers acknowledged costs that outweigh the environmental benefits, and we are doing that in the middle of a recession. I am alarmed about the effect of that on fuel poverty and about the incentive for businesses in this country to migrate to other countries. We may meet our international carbon dioxide reduction target, but only by making the recession worse.
On top of that, we—that includes the Conservative party—have now accepted a new target for an 80 per cent. reduction in CO2 emissions by 2050, rather than 60 per cent. That will now include aviation and shipping. There is no way on earth that we will meet that target. I return again to the point that we must found our policy on reason and what is realistic and practicable, otherwise we will simply disillusion the public.
Does my right hon. Friend accept that one of the big flaws in the Stern report is that it does not engage with reality. On
"we must...halt deforestation - the source of 20 per cent. of greenhouse gas emissions", but he did not say how that would be possible. Does not that same flaw run through the whole report?
I agree with my hon. Friend. It is an abuse of the political system to mandate impossible targets and policies. Instead of convincing the public, it will disillusion them.
The claim is sometimes made that a switch to green technologies and regulation as I have described will create enough jobs to replace those lost in the economy. Of course, any regulatory system that requires technology will produce visible jobs in research and technology as well as administration and enforcement, but if that process puts up prices elsewhere, jobs will be lost. Those might not be so visible, but they will be real nevertheless. Perhaps a good, simple example is the carbon capture and storage technology, which many believe—the Conservative party is mandating it—should be used for any new coal-fired generating stations. I accept that the technology, which is wholly untried, will create jobs. Scientists and technologists inventing the technology will receive grants, and building the plants, which will be more expensive, will involve higher costs and therefore require higher employment. However, because the plants will be more expensive, the electricity produced will cost more, which will put up prices, creating fuel poverty as well as higher costs for the whole of British industry.
A less visible, but still real loss of jobs will result elsewhere from rendering our economy less competitive. The argument, therefore, that we need not worry because we will create a new stream of employment is flawed. If we distort our economy in that way, we will move away from a market-based approach to wealth generation. Furthermore, by tying up capital expenditure, research grants and employment in one sector of the economy chosen by the Government, we will obviously produce less wealth and research and technology implementation in other areas, such as health, which might—in my view, probably would—create greater human welfare.
In all those ways, I urge the Government to revisit, at the very least, the underlying arguments brought forward by Stern and others and to found our future policies more on reason than faith. With those few words, I endorse the argument that my right hon. Friend has so ably enhanced in this short debate.
I am grateful, Mr. Atkinson, for the opportunity to speak in this debate, which I am pleased that my right hon. Friend Mr. Lilley managed to secure.
I would like to say a word or two about my involvement in, and position on, the matter before us, which I have been looking into, on and off, for about 20 years. In 1989, I was asked to provide advice to the then Chancellor of the Exchequer on an interdepartmental report prepared by the then deputy chief economist, John Odling-Smee. That is what first alerted me, and I have followed the issue, particularly the economics of it, ever since.
The basic science is not in dispute, but there are two questions in that science. First, what temperature increase will result from any given increase in carbon concentrations? The scientists are not unanimous, and dispute is widespread in the scientific community. A Hamburg institute study of opinions, prepared by Professor Storch, is decisive on that point. Furthermore, Professor Lindzen—arguably the father of modern climate science—of the Massachusetts Institute of Technology, was asked to be the lead author of the 2001 science part of the report by the intergovernmental panel on climate change and has argued vigorously against the so-called consensus.
The second controversial question is about impacts, to which my right hon. Friend alluded. Throughout the area of science dealing with impacts, hot disputes are raging. For example, is it true, as is widely asserted, that a given increase in temperature will lead to an increase in malaria? That view can be found in many documents purporting to make the case for urgent cuts in carbon emissions, but most of the world's leading malaria experts refute it. The same can be found on glaciation and the alleged increase in tropical storms. The world's leading expert on the latter resigned in disgust from the IPCC process, I think because he felt that his science was being tampered with.
Recently, Professor Lindzen himself wrote a very interesting, thoughtful and accessible paper—I hope that this sort of material is getting to the Minister—entitled something like "Is Climate Change Any Longer About Science?". He is worried that scientific method is being set aside in favour of what constitutes a campaign. My own tentative view is that some warming is happening and that—to put it in the language of climate scientists—there is probably an anthropogenic signal in the temperature record. The effects of further increases could be large. I hold that view very tentatively on the basis of what I have read. The key counter-argument was put by Mr. Smith, who said that even if that is only a tentative view, what about catastrophic risk and the chance that we might shortly pass a tipping point? Was that his point?
However, the tipping point view is not supported by the IPCC, nor the lion's share of experts in this field. That catastrophic risk needs to be set against other risks, such as the risk of nuclear proliferation, of being hit by an asteroid or of pandemics, all of which have their adherents, including some of the world's leading scientists who argue that they are greater risks than climate change. From what I can tell, the Copenhagen group has concluded that climate change is not even high on the list of those catastrophic risks, but relatively low down.
"The IPCC is not going to talk about tipping points; it's not going to talk about five-metre rises in sea level; it's not going to talk about the next ice age because the Gulf Stream collapses; and it's going to have none of the economics of the Stern Review. It's almost as if a credibility gap has emerged between what the British public thinks and what the international scientific community think...Over the last few years, a new environmental phenomenon has been constructed—the phenomenon of 'catastrophic' climate change. It seems that mere 'climate change' was not going to be bad enough, and so now it must be 'catastrophic' to be worthy of attention. The increasing use of this pejorative term—and its bedfellow qualifiers 'chaotic', 'irreversible', 'rapid'—has altered the public discourse around climate change".
No more authoritative voice need be listened to.
I have sat patiently and listened to some of this stuff, but misrepresenting the Tyndall Centre as climate change sceptics really takes the biscuit. When the IPCC does not include things such as the tipping points resulting from the melting of the Greenland and Antarctic ice sheet, the hon. Gentleman must be aware that that is because it has been conservatively trying to preserve consensus among the entire population of global scientists who are involved in the matter. It is not rejecting such a view; if anything it is more likely to include it at a later stage and then upgrade its projections.
A moment ago, I pointed out that a number of the world's leading sceptics about the science—people considered to be the world leaders in their field—have resigned in disgust from the IPCC process. The hon. Gentleman is shaking his head in dissent, but those are facts. The IPCC has a team of officials who are trying to translate science into policy. There has been very widespread criticism of their attempts to do that. Many argue that they are hyping up the threats. Such a view can be found in the work of David Henderson. Ian Byatt has also done something on the matter. A good number of other top international people, including Professor Lindzen and a number of top climate scientists, have also come to the same conclusion.
Let me turn to the Stern report itself. Lord Stern came to the issue afresh in 2005. He told us that himself; he knew very little about it until then. His main conclusions—it must be borne in mind that he was never an environmental economist—contradict the lion's share of the world's finest minds who have considered the subject over the past quarter of a century. They have concluded that his work is "preposterous", "incompetent" and "neither balanced nor credible", and that it cannot be described as economic analysis and so on.
There is a wonderful passage in the Yale symposium in which Professor Mendelsohn addresses the issue directly in front of Lord Stern. Stern and his team of experts went out to Yale to a very interesting symposium, which provides essential reading for those who are interested in the economics of the issue.
"Just how powerful is this wizard"—
Professor Mendelsohn is saying that in front of Lord Stern, and the wizard is Nick himself—
"and what is his command of the truth? Is the Stern Review a complete revision of the economics of climate change"— over the past 25 years—
"or is it merely smoke and mirrors? Is the Review substantive and authoritative or is it mostly hand waving?...I think the Report largely is the latter."
So he said "smoke and mirrors". That speech was made in front of the world's leading experts in the field. Yet to my amazement and disappointment, the Government still cling to the Stern review as almost the sole justification for their policy. It is as if it has magical justificatory properties. They do that even if it means flatly contradicting themselves on discount rates, as my right hon. Friend pointed out. I have tabled a number of parliamentary questions myself to try to get answers about the discount rates that are being used. I have discovered that the Government are using different discount rates all over the shop, for projects that are justified on the grounds of climate change policy.
Far from bringing coherence to Government policy, the Stern review seems to have generated something bordering on chaos, a disorder that any cost-benefit analyst would abhor. What if the Stern review is wrong and what if Lord Stern is mistaken about any one of his highly tendentious assumptions and projections, the most important of which is the discount rate itself? Who will pay the price? The price will be paid by the poorest in the world who will be denied access to rescue from absolute poverty, and by the poorest in our society who will pay the most—as a proportion of their total income—for the higher energy prices that will result. The damage will be colossal if he is wrong.
Should we rely on a recondite economic theory radically to restructure global economic activity and put at risk the long-run economic growth—although we have a problem at the moment—that we have seen over the last quarter of a century as a result of globalisation and the prosperity that has come with it? That is what the Government seem to be bent on doing, and it is based on a theory that informs every aspect of policy. It is not just future policy that will be affected; we are paying the price right now. The TaxPayers Alliance suggests that something like 14 to 20 per cent. of current electricity prices reflect climate change policy. We have had the scandal of the emissions trading scheme, which has been a very expensive disaster.
In a previous debate, I have discussed, in some detail, the flaws in Lord Stern's discounting theory. If a more plausible discount rate is used, Stern's conclusions go into reverse. He would then need to argue for much more moderate early cuts in emissions than the crash programme of early cuts that he proposes. My own tentative view is that a more moderate programme, which is supported by the overwhelming majority of environmental economists around the world, is probably the right precautionary approach to take.
In response to the concerns that I expressed in that debate, I received a letter from the Minister that purported to rebut many of the critiques of Stern. The note itself struck me as deeply flawed, but to be sure I sent it to Professor Tol, one of the world's leading experts, and Ian Little, the father of modern welfare economics and Nick Stern's moral tutor at Oxford. Some months ago, they responded to me. They identified not only my concerns but a huge number of others. I will not detain the House by reading out so many of their disagreements with the Government's three-page note. Their comments are so devastating that there is nothing left of it. They show that there is a complete misunderstanding by the Government's own advisers of the Stern review itself. I am not surprised since the Stern review is so opaque and difficult to understand. Even the world's leading experts took a couple of years to unpick it, so it is not surprising that they got it wrong. I will put both the note and the responses that I have had in the House of Commons Library, so that others can look at them.
We are in the realm of deep theory and of trying to understand something known as the Ramsey equation when discussing discounting. The fact that the Government's own advisers have failed to understand the matter should act as a warning to us not completely to restructure the economy on the basis of what can only be described as a very small band of people, led by Nick Stern, who have convinced themselves that more conventional discounting methods are mistaken.
The Stern review, of course, is riddled with a host of other contradictions. A central assumption of it is that the social cost of carbon is greater than the market price. The theoretical object of the trading scheme is presumably to ration emissions until those exchangeable rations trade at a price that can then rise to match the social cost of carbon. What is the appropriate price? If one looks very carefully one can find it, hidden away in the Stern review: it is $85 per tonne of carbon equivalent. That is on page 323. That was subjected to vigorous scrutiny at the Yale symposium. There, Lord Stern, faced by those who are not bamboozled by his intellectual pyrotechnics, appeared to retreat. What he said at page 65 is worth quoting, as it is the core of Government policy:
"The concept"— that is the concept of the social cost of carbon—
"is a valuable one in analysis but much less as a guide to policy. That's why in my presentation I didn't lay a lot of emphasis on the social cost of carbon".
That is a central plank of the argument. There are lots more like that. I shall allude to one more and then close.
There are already two Stern reports. The original Stern review, mark 1, suggests a reduction of 60 per cent. in carbon emissions. Less than three years later, mark 2 appeared, arguing for 80 per cent. cuts—an even more radical crash programme of proposed cuts. Yet on page 276 of the original report Lord Stern appears to disown what he subsequently came out with in the mark 2 report. He says:
"The lesson here is to avoid doing too much, too fast, and to pace the flow of mitigation appropriately."
He continues by saying that
"great uncertainty remains as to the costs of very deep reductions. Digging down to emissions reductions of 60-80 per cent. or more relative to baseline will require progress in reducing emissions from...a number of areas where it is presently hard to envisage cost-effective approaches."
I have one last remark with which to end. We will need to come back to the Stern review. The Government, and certainly the next Conservative Government, cannot possibly leave the issue and their policies to be based entirely on a report that has been so comprehensively rubbished by so many of the world's leading experts. I know no precedent for the British Government to persist with such an approach, and I hope that they will reconsider.
It has been an interesting debate. I congratulate Mr. Lilley on securing it; it is important. As a good Liberal, following the dictates of John Stuart Mill, I recognise that even if the whole of humanity is of one voice and one person dissents it is important to hear that person's views. Particularly given the right hon. Gentleman's background in economics and physics, it is important to listen to his reasoned arguments; and they were reasoned—slightly more than those of some of his right hon. and hon. Friends. Some of the remarks of Mr. Tyrie and Mr. Heathcoat-Amory misrepresented the Stern report extremely. If I may quote two examples, the right hon. Member for Wells said that no account was taken of solar intensity in the Stern report; but one need only read to page 26 before solar intensity is factored in.
I said nothing about that being in the Stern report. I was talking about the IPCC. Also, the point was nothing to do with solar intensity as regards heat or light; I was referring to the magnetic field and its fluctuations, and its effect on cosmic rays and therefore cloud formation. That is a completely different mechanism, which is not mentioned in the IPCC report even to refute it. That was my suspicion.
I think that the record may show that the right hon. Gentleman did refer to the Stern report in that context; but to suggest that Stern did not take account of the well known and well understood effects of solar radiation is to misrepresent him.
Reference has been made to Professor von Storch's work. That also is specifically mentioned on page 6 of the Stern report. He mentions that it is superseded by subsequent and wider data sets that have been taken into account, for instance, by the US National Research Council, which in 2006, two years after von Storch, concluded that there is a high level of confidence that the global mean surface temperature during the past few decades is higher than it has been at any time over the preceding four centuries.
No, I am sorry; time is very short and Conservative Members overran slightly.
I agreed with some of the points made by the right hon. Member for Hitchin and Harpenden. He rightly emphasised the importance of global warming for people in poorer countries, and emphasised that they would be hit hardest first, which I entirely agree about. He acknowledged the truth of the greenhouse effect based on simple chemistry and physics—an important concession that not all his right hon. and hon. Friends make. However, he seemed to cast doubt on the fact of global warming, towards the end of his remarks, by looking only at data from very recent years. He will be aware that to take the data of one decade, let alone one or two years, is much less important than to look at the overall trend. I cannot believe that he really disputes data of the kind presented in the Stern report from the Hadley centre, based on Brohan and others. They show clearly that over the past 30 years global temperatures have risen rapidly and continuously at about 0.2° per decade, and that that brings the global mean temperature to what is probably at or near the warmest level reached in the current interglacial period, which began about 12,000 years ago. All the ten warmest years on record have occurred since 1990.
I have my criticisms of the Stern report, too, although they are rather different ones. It is over-optimistic in many respects. It is soundly based on IPCC data but, as I have mentioned in an intervention, the IPCC is itself quite conservative. In its search for consensus, it has ruled out impacts based on the melting of the Greenland and Antarctic ice sheets, which I think makes it over-optimistic. The text of the Stern report also highlights clearly the dangers of global warming above 2° C above pre-industrial levels and links those with high probability to an increase in concentration of CO2 in the atmosphere of more than 450 parts per million. However, it then concludes that a concentration much higher than that, of 550 parts per million, is in some way acceptable. I find that a strange discontinuity in the report.
I am aware of other criticisms. It was interesting that the right hon. Member for Hitchin and Harpenden commended the work of Professor Frank Ackerman to us. Unluckily for the right hon. Gentleman, I have read the work of Professor Ackerman and if the House will permit me, I shall quote at some length one of his criticisms of the Stern report. He states that
"the Stern Review and its well-researched background papers are consistent with IPCC and other reports. There is no hard evidence that Stern has exaggerated the extent of crisis. If there is a problem, it is in the opposite direction: on some important questions, Stern relied too heavily on existing economic research and models, including an analysis that gives low estimates of the probability and costs of catastrophic changes. While the text and diagrams of the Stern Review suggest that the risk of losing the Greenland ice sheet is noticeable at 2° of warming, and severe by 3°, the Stern economic model assumes no risk of catastrophic damages below a threshold that varies from 2° to 8°, with 5° the most common value. A model that took seriously the warnings about catastrophe in Stern's text would reach even stronger conclusions about the need for immediate action to reduce emissions."
I think that perhaps the right hon. Gentleman is being a little selective in quoting from Professor Ackerman.
In a sense, Lord Stern himself has now been added to the critics of the original Stern report. In a conference in April he referred to how he "underestimated the risks" and
"underestimated some of the effects" and commented:
"I think the damage associated with high temperature increases was underestimated."
He went on:
"The damage risks are bigger than I would have argued. Things like the damages associated with five degree celsius temperature increases are enormous. We could not be precise about what would happen to the world, what it would look like, but we can say that it would be a transformation. The last time we had temperatures like that, we had a world of swampy forests."
In other words, if he were writing the report now he would have been even clearer about the costs of inaction and would have set the costs even higher.
The right hon. Gentleman referred to a footnote on page 142, suggesting that some of the evidence on which some of Stern's conclusions were based was a little weak, yet pages 140 to 142 show three pages of scientific references and data on which Stern based many of his conclusions. He took account of many consensus views, including that of the IPCC. Members who have suggested that Stern made rash or irrational conclusions underestimate the extent to which uncertainty and risk were carefully factored into his model. He actually takes a prudent view of risk. His model ran different scenarios a thousand times and averaged out the impact, so his view of uncertainty and risk is prudent and wise.
The right hon. Gentleman suggested that Stern's economics were at fault, claiming that he used a very low discount rate that was far lower than that which people use in other circumstances. Of course, a different discount rate was used to factor in the effects of something that will have an impact not only for decades or centuries, but over millennia, and in relation to which the decisions taken now will critically affect the future outcome. He suggested that taking a future prediction of wealth in which people were only four times wealthier than they are now, rather than five times wealthier, was somehow rash, but that would be a 20 per cent. reduction in future gross domestic product, which would be an extraordinary economic cost, and not one that I am altogether sure the rest of his party would advocate.
Incidentally, the discount rate was also addressed by Professor Ackerman, who also concluded that Stern is broadly right. The discount rate is based on several factors, including the ethical factor that one values one's great-granddaughter's life as much as one's own. Setting short-term economic advantage against the lives of future generations certainly suggests that the number for the so-called rate of pure time preference should be very low indeed—I think that Stern used 0.1 per cent. The other element of the discount rate is the assumed rate of economic growth. It now appears that Lord Stern, in assuming 1.4 per cent. growth, might have been rather optimistic.
I agree with the right hon. Gentleman about the Government's inconsistent use of the discount rate, which I think has had a negative impact on decisions such as that relating to Heathrow, and I would like to repeat exactly the same question he asked about the use of the discount rate and where the Government now stand on it.
I will finish by giving one final conclusion from Professor Ackerman's study. He claimed:
"A reasonable economic analysis of climate change requires a discount rate roughly as low as Stern's, in order to 'see' the future; a broad treatment of uncertainty, something like Stern's, to reflect current scientific knowledge of the problem; and rigorous examination of expected damages, which are likely to be even greater than Stern suggested. While no one is exactly right on every question, Stern is 'much less wrong' than most of his critics."
I congratulate my right hon. Friend Mr. Lilley on securing the debate and for the constructive and thoughtful way in which he introduced it. It is typical of him to bring to the debate the expertise that he has gained from some of the highest levels of government, which explains the respect people have for him. I do not want him to get the impression that I am about to agree with his speech in its entirety, or even in its majority, but it is important to put on record his background and the expertise he brings to the debate.
I certainly agree with him about the importance of rigorous assessment and with the Karl Popper approach to such things, which suggests that we will not carry public opinion if we are not open to challenges on the argument or to having a debate about the issues and the basis on which we introduce policy proposals. We can only carry public opinion if the public are convinced by the arguments, which is one reason why I tabled an amendment to the Energy Bill Committee proposing that customers should be shown the exact cost of the green element of their electricity on their bills. If they pay £80 or £90 a year, they should know what that green element is, so that they can have an informed debate about it, rather than feeling that some of the key information is being hidden from them.
We should not, however, use that ongoing debate as a reason to put off action. We are all, as politicians, on a journey, and where we start and end is different for each of us. I know that my right hon. Friend the Member for Hitchin and Harpenden, just a few years ago, was on the other side of the debate. He was one of the signatories of early-day motion 178, as many of us were, which stated that
"climate change is a threat to civilisation" and welcomed
"the cross-party agreement in favour of major cuts in greenhouse gas emissions, and particularly in carbon dioxide emissions", and called for the introduction of a climate change Bill. My right hon. Friend's position has moved as different arguments have been put forward, but at the same time many of us have moved in a different direction because of the evidence that we have seen.
I am persuaded that we have seen a non-linear increase in global temperatures, and I understand that scientists agree that, in the past 2,000 years, the world's temperature has never been higher than it is today and that that increase cannot be explained by natural causes. I have seen good explanations for some of the contradictory evidence that has been put forward. My right hon. Friend the Member for Hitchin and Harpenden commented on snowfall, and snow is falling in Antarctica, rather than the ice that should be developing. Snow should not fall there, because the temperature should be so low that snowfall is impossible, so that is evidence that the temperature in Antarctica is rising.
We should be well aware of the contribution that man is making to that change. We contribute 26 billion tons of CO2 to the world's atmosphere every year, half of which comes from energy generation. That figure is 100 times larger than the CO2 emission from volcanoes, which some people regard as an explanation for the rising levels of CO2 in the atmosphere. It cannot be good that we are producing so much CO2, and it should be our intention to try to reduce it.
My concern about the approach taken by my right hon. Friend the Member for Hitchin and Harpenden is that, although he delivered it in a balanced way, it could be used as a justification, not for doing less, but for doing nothing. If we want action to be taken, we need to move forward, and we cannot be put off taking action that needs to be taken early. While we have heard discussions this morning about the discount rates, the key message of the Stern report for me is that the highest cost of the damage resulting from doing nothing is significantly higher than the highest possible cost of mitigation. We return to the argument about insurance, and whether it is sensible to take up 1 per cent. insurance cover, just as we would to protect our homes from damage and fire, even though the risks are less than one in 100, and to take a similar approach to insurance for our planet and livelihoods and for those of our children and grandchildren.
I certainly subscribe to the precautionary principle. If people look back on this debate in 50 years' time, which is unlikely, and if we were wrong about the evidence on climate change, they will say that we still did no harm to our world by trying to mitigate the effects of man's emissions, but if they decide that we were right about the concerns, they will be very angry indeed that we did not take action when we had the chance. The consequences of inaction are enormous: there will be economic damage and massive extra costs in trying to put right the consequences of climate change. We will see population transfers as people move away from parts of the world that have become too hot, which will lead to conflict and the resultant huge human consequence. It will also lead to the spread of disease. We need only look at the introduction in the UK of bluetongue disease, which is carried by flies that simply would not have been able to live here several years ago, to see the consequences of climate change.
We should also see this as an opportunity. People talk about the costs of combating climate change, but every time I talk to business it says that this is one of the most exciting opportunities that it sees. We can even see that in the energy approach and in the contribution that solar power can make, for example, as a huge amount of expertise and genius is being put into bringing down the cost of solar power. Such action goes directly against the argument that my hon. Friend Mr. Tyrie made, as the implications of developing solar power for the poorest people on our planet are massive. We can use the power of the sun in the Sahara through concentrated solar power to make endless, cheap energy available to people in sub-Saharan Africa, and there is also scope for the desalination of water, which could make a fundament improvement to their quality of life.
No, I will not do so, because I have only one minute left. I hope that my hon. Friend will understand and that we can discuss this subsequently.
Moving away from hydrocarbons will give us greater price stability and security as well as greener energy. It is by relying continually on hydrocarbons that we end up with the problems of price instability and less security. We are on the verge of an incredible new age of innovation. Necessity is the mother of invention. The car companies are working to reinvent motor cars and to meet the challenges of powering them differently. Other work is being done on small things such as eliminating standby buttons because of the energy that they use. Typically, standby buttons, which were a matter of great debate a couple of years ago, now use less power for a period of weeks than it takes to boil a kettle once. Enormous work is being done to transform our world and how we live. This is an exciting opportunity. We should not be worried about going down the route that we are on, because business itself sees it as an amazing opportunity, and at the end of the day, we should be aware that the consequences for most of us of doing nothing are much greater than the consequences of taking action now.
We as a Government stand by the Stern review, which estimates that the costs and risks of not acting to tackle climate change will be equivalent to losing 5 to 20 per cent. of global GDP each year, now and for ever. In contrast, the costs of taking global action to avoid the worst impacts of climate change are expected to be only about 1 per cent. of global GDP by 2050. In response to the question that I was asked, the UK Government have undertaken subsequent analysis that confirms Stern's estimates. The modelling shows that the cost of action will vary between 1 per cent. for a 550 parts per million stabilisation goal and 3 per cent. for a 450 parts per million stabilisation goal. The costs are significant—nobody disputes that—but we believe that they are manageable against the potentially catastrophic impacts of climate change.
I will not give way. I have so little time, and everyone else has spoken.
It is important to understand that Stern was producing an analysis not for the UK but for the world, and his arguments need to be understood from a global perspective. The Stern review sets out a framework for reducing emissions, and UK policy is fully in line with it, as highlighted in the Government's response to the review published last year. First, we have put a price on carbon not only through emissions trading and taxation but implicitly through regulation. Secondly, we are implementing the right technology policy, including investing £400 million to support the commercialisation of low-carbon technologies between now and 2011. Thirdly, we are removing the barriers to behavioural change through measures such as the carbon emissions reduction target and the "Act on CO2"campaign.
However—this is an important point—the case for action does not rest on the Stern review alone. Indeed, the Government have been committed to the climate change agenda and emissions mitigation since 1997, well before the report was produced. The case for action has been demonstrated by overwhelming scientific evidence, notably that brought together by the intergovernmental panel on climate change and representing the consensus of thousands of scientists worldwide based on peer-reviewed research. That process, despite what has been said today, has been widely acclaimed as an example of comprehensive, thorough and fair assessment of a complex scientific problem.
We believe that the Stern review's analysis and policy conclusions have stood up well to scrutiny. In particular, sensitivity analysis shows that Stern's main conclusion that the costs of strong action are less than the costs of damage avoided and its policy implications about the need for rapid action are robust to a range of assumptions suggested by critics. The sensitivity work has been published and is available to download from the review's website. I hope that the right hon. and hon. Gentlemen who have spoken in this debate will take the trouble to work through the responses to the various critics whom they have quoted.
I was asked about the different discount rates. There are two main reasons why Stern used a different discount rate to estimate the costs of climate change from that used, for example, by the Treasury in the Green Book. First, because the choice on whether to undertake global action on climate change involves large and irreversible intergenerational impacts, Stern concluded that it would not be ethically defensible to discount—that is, to attach less importance to—the impacts on future generations simply because they will have been born at a later point. Secondly, Stern did not apply a single fixed discount rate, as has been suggested, but varied it according to the prosperity of future generations in the different models used. That is because we should attach a greater value to the welfare of future generations who are relatively poor than to the welfare of those who are relatively rich.
Alternative approaches advocated by critics place very low values on future impacts, which means that they do not care about passing on far greater costs to future generations. The Government believe that the approach taken by Stern is appropriate and reflects how most people feel about the sort of world that we should leave to our children and grandchildren. Put simply, those who do not care about the future do not care about climate change. We care about the future, so we believe firmly that it is imperative to act on climate change, and to act now.
The right hon. Member for Hitchin and Harpenden referred to the impact assessment and made various criticisms, to which I shall respond. He correctly mentioned the benefits, which were calculated to be in the range of £82 billion to £110 billion, but there is significant uncertainty about costs in looking forward to 2050. He referred to costs of £205 billion, but did not mention that the range of costs was from £30 billion to £205 billion. The cost of £205 billion would arise only if there were no technological innovation beyond 2010. I believe that that is a conservative estimate based on an unrealistic scenario. There will be huge innovation and technological change, so arguably that estimate is far too conservative. The estimated costs also did not take account of the potential for international trading, which could significantly lower the costs of action, benefiting the UK as well as developing countries. Even for the most pessimistic cost scenario, which the right hon. Gentleman quoted, estimates are consistent with the Stern review findings that costs will be 1 per cent. of GDP, plus or minus 3 per cent., by 2050.
The right hon. Gentleman asked whether we would update our impact assessment. We plan to do so; the updated assessment will be done next month. It will draw on the new evidence from the Committee on Climate Change and new Government research and will be updated to incorporate the 80 per cent. reduction target and the move to include all greenhouse gases. The shadow Committee has already produced new evidence, which will be incorporated in the impact assessment, and its interim advice suggests that costs will be between 1 and 2 per cent. of GDP in 2050, in line with the Stern range.
We have also developed new evidence on the air quality impacts of action on climate change. Improvements in air quality resulting from meeting the 80 per cent. target will benefit us to the tune of £3 billion a year in 2050. Clearly, that needs to be taken into account, as does the method for valuing carbon, which is also under review. That is likely to increase significantly the valuation of the benefits of reductions delivered by the Climate Change Bill. A great deal of change will be taken into account, as will the advice of the shadow Committee.
Much was made of criticisms of the science. I think that they have been answered by the two previous speakers. We are absolutely convinced. I am a scientist myself, and if I had to weigh up the huge numbers of scientists and the IPPC's peer review process against a few critics, I know where I would put my scientific trust. Temperature rises over the decade have indeed been small, but we must look at a much longer period. When we do so, we see that temperature rise is well under way, as are sea level rises. Climate change poses a real and terrible danger, so we need action to tackle it. We are demonstrating that resolve through the Climate Change Bill. It is in our interests to obtain a global agreement. That is the way to address the threats to this country and to the poorest people on the planet.