A problem with Lord Stern

This strikes me as really rather odd:

Recent weeks and months have shown country after country raising their ambitions on controlling emissions. It is now clear that if countries move together and they find ways to extend their action we could set the world on a responsible path. We can now see that it is possible to achieve an agreement that is effective, efficient and equitable. It will allow us to avoid the biggest risks of climate change, to overcome poverty worldwide and to usher in an exciting new era of prosperity based on a much more attractive and stronger form of economic growth – sustainable low-carbon growth.

Through innovation and investment in greener and more energy efficient technologies in the next two or three decades, the transition to the low-carbon economy can be the most dynamic period of growth in economic history. And the low-carbon world we can create will also be quieter, cleaner, more energy-secure and more biologically diverse.

This is an argument from an economist, remember, someone supposedly au fait with the subject.

He\’s saying that massive investment in more expensive systems of energy production is going to produce stronger economic growth.

Eh?

Rather forgotten about opportunity costs there, haven\’t we?

Now, yes, I don\’t doubt that there will be economic growth reported from such actions. But that isn\’t the point at issue: look at that word \”stronger\”. Stronger than what? Stronger than if we don\’t invest all that money in energy production systems which are 2, 3, 5 times more expensive than the technologies we already have? If we invest it all in other things using the current technologies?

That doesn\’t seem to pass the basic logical test does it?

To repeat it with numbers. So, imagine (entirely made up numbers), we go off and spend £100 billion on high priced energy systems. We see some economic growth, yes. Or, we go off and spend £50 billion on current technology energy production systems and invest the other £50 billion in: well, anything really. A cure for cancer, anti-malarial stuff, better computers or in vitro meat production.

We would, in that second scenario, get both energy and a cure for cancer, less malaria, better computers or the ability to grow our own bacon sarnies in the kitchen. And as we\’d have two things (one of those plus energy) instead of just one (energy) we\’d have had more economic growth, wouldn\’t we?

Or if you look at it another way around, more narrowly, economic growth is defined as an increase in GDP per capita (or can be, and that\’s what we\’ll use). GDP itself is a measure of value added to the resources available to us. So if we use our resources to produce expensive energy, or we use our resources to produce cheap energy plus bacon sarnies, we\’ve had more economic growth in the latter system: by exactly the value that we put on bacon sarnies.

Yes, I know, this is simplistic, there are other things (like the damage from furture climate change that we\’re dodging) but it\’s an attempt to try and see what it is that Stern is claiming.

And as far as I can see his claim is nonsense. It might be worth giving up some economic growth to dodge the warming. It might be true that we\’ll see economic growth as a result of the investment plans. But it can\’t be true that we\’ll see more economic growth by doing things which add less value than the growth we\’ll see from doing things which add more value.

Take the German solar feed in tariffs. They cost $1,075 per tonne of CO2 not emitted. The cost of a tonne of emissions is $80 (by Lord Stern\’s numbers). Yes, we can see economic activity from people scurrying over rooftops in Germany installing the solar panels: but we\’re not seeing the reduction in growth caused by paying $1,075 to deal with an $80 problem.

It\’s Bastiat all over again isn\’t it?

Now it\’s always possible that I\’m talking tosh here, that I\’ve missed something. But I cannot see what it is. Anyone else want to pitch in?

Note that the question is very specific. It\’s not is this worth it, it\’s not \”there is no AGW\”, it\’s the very specific claim by Stern that spending lots on AGW will produce stronger economic growth than investing the same amount not on AGW…..some on energy production and the rest on other things.

4 comments on “A problem with Lord Stern

  1. Tim, how irresponsible of you to choose BACON sarnies for your example ! Don’t you realise how offensive this might be to members of several world religions ?

    Where is your PC-ness ?

    Alan Douglas

  2. by exactly the value that we put on bacon sarnies.

    I place a high value on bacon sarnies, so this is clearly the better choice.

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