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September 2008

As hellfire preachers have long known, people will listen to you if you can produce plausible forecasts of the end of the world.

The Stern Report — The Economics of Climate Change — judged that early “action” was needed to avert “major disruption of economic and social activity, on a scale similar to those associated with the great wars and depression of the first half of the 20th century”. It argued for a radical upheaval in energy use, with a major shift from fossil fuels to renewable sources, relying on confident predictions of carbon emissions for the next 100 years.

But a key assumption in the Stern exercise has been falsified in little more than two years. The report appeared in October 2006 and reflected work carried out earlier that year and in late 2005. At that time the price of oil was typically between $45 and $65 a barrel. The oil price is basic to any assessment of future carbon emissions, because a high price is a market force that — by itself, without government intervention — ought to cause substitution to alternatives.

Professor Lord Stern recognised that. “Are the stocks of fuels in the world large enough to satisfy demand?” his report asked (in section 7.6), and he even referred to fossil fuel scarcity as a possible “laissez-faire answer to the climate change problem”. But the subject was dismissed. After citing analyses by the World Energy Council and the International Energy Agency, Stern’s report concluded that fossil fuel was abundant. So, in its words, “there appears to be no good reason .?.?. to expect large increases in real fossil fuel prices to be necessary to bring forth supply”, even though a big increase in price would be necessary to check fossil fuel consumption “if no other method were available”.

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