Jennifer Marohasy

a forum for the discussion of issues concerning the natural environment

Stern Report Reviewed

By

Dear Jennifer,

Australia’s Productivity Commission has finally reviewed the Stern Report [the report commissioned by the British government on the economics of climate change] and according to newspaper reports has attacked it for its advocacy and dubious costings.

The Productivity Commission document is available via http://www.pc.gov.au/research/staffworkingpaper/sternreview

Reports in The Age, Sydney Morning Herald and The Australian are available at the following links

http://www.theage.com.au/news/national/challenge-to-climate-change-report/2008/01/24/1201157560374.html

http://www.smh.com.au/news/environment/think-tank-questions-stern-review-on-costs/2008/01/24/1201157560512.html

http://www.theaustralian.news.com.au/story/0,25197,23105165-11949,00.html

The ABC is currently silent on the matter.

Cheers
John McLean

Reader Interactions

Comments

  1. Anthony says

    I read the review yesterday and thought it was fairly balanced actually. It recognised that the issue of discount rates is essentially a moral judgement and that Stern would should have presented some more sensitivity analysis around such variables. I think to call it as attack is drawing a very very long bow.

    I thought the Age artical this morning misprepresented somewhat the tone of the PC review – in much the same way as this blog post.

    I think the PC review let itself down by constantly comparing the science presented in the IPCC reports and that presented in the Stern review. As we know, due to the nature of the scientific process (data collection, present findings, peer review etc) the IPCC essentally presents ‘old’ science.

    New understanding of feedback processes and ice melt dynamics means that Sterns more bullish outlook on warming may be justified (in my humble opinion).

  5. Louis Hissink says

    Anthony

    the press release is 9 oct 2007 and why has it remained so comphrensively unknown until you stumbled on it. I would have thought your lot would be braying from the tops of your windmills over that initiative.

  8. Jennifer says

    Can we get back to discussion of the Productivity Commission report or I may start randomly deleting comments.

  10. Graham Young says

    The language of the Productivity Commission paper (it’s only semi-official) is restrained, but when you take the combination of the errors they point out it completely destroys the Stern Report as a credible document. Not only does he pick a scenario that is at the highest end of any estimates, but he chooses a discount rate which is ridiculously low. Put them together and the real cost is much less than the “half” of Stern’s estimate quoted by the newspaper.

    What Stern has done is what every investment shonk does – picked the most favourable scenario and then chosen an unrealistic investment return. The discount rate apparently suggested by the paper of 6% sounds reasonable, while the 1.4% used by Stern is absurd. Most commercial businesses wouldn’t be investing in something that didn’t have a hurdle rate of 10% or better, but Stern wants us to “invest” in something roughly one-quarter of the risk free return!

  11. Anthony says

    Graham, most commercial business fail to assess whether predicted rates of return have been achieved. This is the subject of an interesting Phd at RMIT I know of.

    Commercial businesses typically cook their numbers to favour projects they want to do so I don’t think the comparison is useful. High hurdle rates also help mitigate the risk of investing in projects with undertain returns.

    The key question in this scenario is given what is at risk, what discount rate is appropriate. Even if the probability of non linear/catastrophic climate change is small (under 1%), it is nonsensical to risk the scenario because the future value of the damage has been discounted to stuff all of nothing by your discount rate.

    Again, Goldman Sachs calculated the risk of sub prim melt down to be 0.000000000000000000000006%. It happened. i.e. it is worth planning for high impact, low probability events, espically when the impact is huge. This necessitates a low discount rate to ensure the cost of future damaage is not trivialised.

  12. Graham Young says

    Anthony, no business would need to “cook their numbers” if they applied a disount rate of 1% – they’d do every “deal” that came along, and go broke in the process. Choosing this discount rate is the equivalent of cooking the books. It’s so low that you’re effectively saying that there is no point doing a cost analysis at all.

  14. SJT says

    “and of course the appelation given you is, er El Morono SJT?”

    I was just asking. Marc Morano refers to a Dr John McLean as being one of his 400. The topic is by John Mclean. Is this the same John McLean, and has he a doctorate?

  17. Graham Young says

    Ender, I just read Quiggin and he doesn’t say much – it’s all assertion. Amusing that he criticises those he calls “delusionists” for not being climate scientists, and therefore knowing nothing about the area. Very asymmetrical of him, seeing he’s an economist, so what would he know?

    Amongst all of that he’s equivocal on what the discount rate ought to be, which is the nub of the Productivity Commission criticism. So, if it’s not 6% and not 1.4%, what is he advocating? Who knows?

  18. Paul Biggs says

    The Stern report is based on the false premise that we can control climate change by spending trillions attempting to manipulate atmospheric CO2, or worse moving emissions to developing countries. The whole thing should be binned.

    Of course, Stern was a member of the UK Treasury when he wrote this garbage – a report by a tax man, for the tax man.

  19. Louis Hissink says

    Climate change reaction is not something based on science, but to gull us to accept state micro-managemen of our actions for the common good.

    I’ll leave it to the less subtle here to describe what that means.

  20. Ender says

    Graham – “Ender, I just read Quiggin and he doesn’t say much – it’s all assertion”

    Well you don’t listen to climate scientists when they talk about the climate so I guess it is consistent when you will not listen to economist when he talks about economics.

    However for some unknown reason you will listen to a mining engineer or a self proclaimed amateur scientist like McLean when they talk about climate. Going by this I guess you get your economics information from your hairdresser.

    Cue Ian Henderson …….

  21. mccall says

    Mr Ender regurgitates again… “However for some unknown reason you will listen to a mining engineer or a self proclaimed amateur scientist like McLean when they talk about climate”

    Mr. McIntyre is a professional statistician, evaluating broken statistics from a former physicist turned, “I AM NOT A STATISTICIAN!” You’ve learned nothing (but how to cut’n’paste RC propaganda/rehashes).

  22. John says

    Dearie me, it seems that people are fixated on whether I hold a PhD or not in much the same way that they hold peer-reviewed papers in reverence. The focus on both signifies that they have no intellectual capability to determine the credibility of a paper or report for themselves but want that to be done by others.

    As someone else wrote elsewhere, I don’t care if a scientific statement comes from an axe-murder who has no formal education; it’s the intellectual argument that matters.

    It’s not as if this forum is actually overloaded with people with proven credentials in the subject. Not so oddly, it seems that those who show no credentials that scream loudest about others.

    My “PhD” is very simple. I spotted the error when the list was first released and I immediately contacted those responsible for it. Marc Morano has also contacted me directly to clarify the matter. I think I’ve seen that Marc has corrected his list but I can’t recall for sure. I haven’t paid a lot of attention because I regard it as trivial – either a statement stacks up or it doesn’t.

    As for other sites, well you know what happens when you let something lose into the wilds of the Internet.

    Now almost back to the subject at hand, will SJT please tell us all why he raised the question about my PhD and why it at all relevant to a blog post that draws attention to a criticism of the Stern Report? Should we instead take his question as a non-sequitur that tells us about SJT’s character and intellectual capabilities?

  23. Ender says

    McCall – “Mr. McIntyre is a professional statistician, evaluating broken statistics from a former physicist turned, “I AM NOT A STATISTICIAN!” You’ve learned nothing (but how to cut’n’paste RC propaganda/rehashes).”

    Oh he is a professional statistician now?

    According to his WikiPedia entry:

    “He holds a Bachelor of Science degree in pure mathematics from the University of Toronto.[1] He was offered a graduate scholarship to study mathematical economics at MIT, but chose instead to study philosophy, politics and economics at the University of Oxford. After graduation he returned to Toronto.

    McIntyre has worked in hard-rock mineral exploration[2] for 30 years, much of that time as an officer or director of several public mineral exploration companies. He has also been a policy analyst at both the governments of Ontario and of Canada.[3] He was the president and founder of Northwest Exploration Company Limited and a director of its parent company, Northwest Explorations Inc. When Northwest Explorations Inc. was taken over in 1998 by CGX Resources Inc. to form the oil and gas exploration company CGX Energy Inc., McIntyre ceased being a director. McIntyre was a strategic advisor for CGX in 2000 through 2003.[4]

    Prior to 2003 he was an officer or director of several small public mineral exploration companies.”

    Don’t see the professional statistician qualifications here. Is this CV padding?

  24. Ender says

    John – “Dearie me, it seems that people are fixated on whether I hold a PhD or not in much the same way that they hold peer-reviewed papers in reverence. The focus on both signifies that they have no intellectual capability to determine the credibility of a paper or report for themselves but want that to be done by others.”

    Completely agree John. In fact just today I tendered for designing a large bridge just down the road. I said to them that, according to John McLean, all you need is the intellectual capability to design a bridge which I believe I have, and they accepted this and now I am a bridge designer. In fact I am going to get Steve McIntyre to audit my design, seeings as be has a degree in Pure Maths, he should be able to give my design a once over.

    Wish me luck.

  25. marcus says

    ender
    “all you need is the intellectual capability to design a bridge which I believe I have”

    To claim intellectual capability is not the same as having one, I don’t think anyone would be stupid enough to take your word for it, so that bridge ain’t going to be built by you!

    I’m afraid you have proved more often than not that you just haven’t got it.

    Give it a rest and go back to the Readers Digest version of science you are so familiar with.
    PS. can you take some of your mates with you? Please!!

  27. Ender says

    Marcus – “To claim intellectual capability is not the same as having one, I don’t think anyone would be stupid enough to take your word for it, so that bridge ain’t going to be built by you!”

    Funny you should say that because one mark of having the intellectual capability is completing a University degree in the subject.

    I can almost here the mental gears as two is laboriously being added to two.

  28. gavin says

    I would like to think that there is a bit more going on than a verbal exchange over at places like the IPCC.

    I would also like to think all our bridge designers considered worst case first. Working in the visual after the event is quite revealing.

    We can refer to our Yarra and Derwent crossings.

  29. rog says

    Ease up Gavin, you must know that most bridge designers refer to the stress tables and err on the side of caution.

  30. gavin says

    Rog: “ you must know that most bridge designers refer to the stress tables and err on the side of caution”

    Mate; if it were only that simple. Engineers like John Monash, John Holland etc grew out of some tables hey

    Google Yarra, bridge, failure, royal commission etc…and find the 1961 Kings Street steel span stuff also the historic Monier designs

    home.vicnet.net.au/~aholgate/jm/papers/jm_aust_engg.html

    then ask how each engineer coped with the issue of increasing traffic as time went on

    From an eye witness “I saw a small “V” of light come as the middle of the bridge kept moving outwards, then the western edge of the bridge fell and I watched it until it was about a third of the way to the ground, then I turned my eyes to the eastern end of the bridge in time to hear the half girder land on the ground”

    http://www.prov.vic.gov.au/exhibs/westgate/eyewitness.htm

    “On 5th January, 1975 at 21:27 the bulk ore carrier “Lake Illawarra” crashed into pier 19 (from the western side) claiming 12 lives and severing the Eastern Shore’s link with Hobart by knocking out a 420 foot section of the bridge”

    http://www.parliament.tas.gov.au/history/brd1.htm

  31. bazza says

    Jen, what is the difference between what you promote as ‘a review by the Productivity Commission’and one of their Staff Working Papers. One difference is the spin you are in.

  32. Anthony says

    Graham, Stern wasn’t making an assessment on a specific investment with the need to provide return to shareholders. He was trying to quantify the value of not acting on climate change and hence the cost of carbon.

    Do you feel it is appropriate to discount the value of future lives by 10%, 15%?