Fred Banks: Remembering The Stern Review of Climate Change: An Unfriendly Note.

Posted: August 22, 2013 by tallbloke in alarmism, Analysis, Forecasting, humour, Incompetence, Kindness, methodology

Professor Banks is a colourful character, and his essays are entertaining to read, if you have an hour. I’ve edited this one for brevity. He did ask me to put a synopsis of his qualifications at the top though, so bear with me and read on.

stumpsProfessor Ferdinand E. Banks (Uppsala University, Sweden), performed his undergraduate studies at Illinois Institute of Technology (electrical engineering) and Roosevelt University (Chicago), graduating with honors in economics. He also attended the University of Maryland and UCLA. He has the MSc from Stockholm University and the PhD from Uppsala University. He has been visiting professor at five universities in Australia, two universities in France, The Czech University (Prague), Stockholm University, Nanyang Technical University in Singapore, and has held energy economics (guest) professorships in France (Grenoble), Hongkong, and the Asian Institute of Technology (Bangkok).


Several years ago Lord (Nicolas) Stern (of Brentford) appeared in Stockholm in order to clarify for a large audience at the Royal Institute of Technology the conclusions reached in his widely advertised analysis of the cost of preventing various environmental calamities. I was not invited to attend this ‘gig’, because it was probably believed by its arrangers that had I been present, there might have been what is sometimes called an ‘incident’. This was definitely not certain, because I would have been willing to exercise a maximum of self-restraint to avoid informing Lord Stern that many leading economic theorists regard his work on this topic as scientifically meaningless.

“Meaningless”, and in the light of the finished product known as the ‘Stern Review’, pedagogically insignificant. To my way of thinking, that document – or at least the very small portion that I forced myself to examine – is an insult to economics teachers like myself, as well as the students who require our guidance where their reading materials are concerned, but who unfortunately may have been informed by advisors, supervisors, mentors and itinerant charlatans that the Stern Review is state-of-the-art knowledge.

There is also this matter of innocent bystanders who pay taxes in order for – among other things – systematic and professional attempts to be made to ascertain the extent and mechanics of e.g. atmospheric pollution, and if necessary to suggest or devise efficient programs for reducing the dangers it may pose to their health and/or their standard of living. I also want to emphasize that the few analytical fragments I perused of the Stern Review reminded me of the esoteric contributions that once filled a journal called ‘The Review of Economic Studies’, which played an important part in my graduate education at the University of Stockholm, and contained articles which later appeared on my reading list when I taught mathematical economics in Uppsala and Australia. Eventually I smartened up however, and I can proudly state that I haven’t read nor taught anything specifically from that or similar journals for more than 20 years, nor do I intend to read or teach anything in the near or distant future, regardless of what close or distant colleagues feel is pedagogically appropriate.

Something else should be pointed out before we proceed to the main theme of this note. The team working on the Stern Report came to 23 men and women, as well as many consultants. In other words, it may have been true that anyone who had anything positive to say about Lord Stern’s approach to this topic – regardless of how inappropriate or loony-tune it might have been – was welcome to contribute.

A DISOBLIGING BACKGROUND

After scrutinizing a few pages of the Stern Review, the first conclusion I formed was that if it is true that we are now living in the most dishonest period in modern times, as a Canadian billionaire once claimed, then the so-called research done by Stern and his team might best be described as an outrageous waste of money. Money that should have been used to provide young students of economics with a portion of the education they both need and deserve, This is perhaps a reason for Professor Richard Tol saying that if the Stern Review had been presented to him as a ‘Master’s’ thesis, he would have graded it F (for failure).

There are no surprises in the Stern report, at least for my good self. Given the limitations of economic theory, as well as the publications and other career achievements of Professor Stern, there was only one logical approach to the project bearing his name, which was to assemble or borrow from an analytical model that would permit an overblown and rambling discussion of cost-benefit analysis to take place over 700 pages. The implicit or explicit model apparently chosen by Professor Stern, and which might have been chosen by myself, or for that matter by party animals posturing themselves and courting attention at the bar of an Uppsala University student club, could only be the one published by Frank Ramsey in his famous article ‘A Mathematical Theory of Saving’ (1928).

What is the reasoning behind this choice? I don’t know how much of the Ramsey model Lord Stern has borrowed, nor do I want to know, but I am aware that a key result from Ramsey’s article appears in the Stern ‘review’. Moreover, the basic focus of such a model can be easily explained to a majority of economics undergraduates, and especially those pursuing their education in the kind of university or institution where environmental studies have almost the same status as theology.

Equally as important, a Ramsey-type model can be summarily enriched in case someone visiting a lecture on this topic decides to play ego games with the lecturer by impugning the logic of Ramsey’s construction. For instance, a skilful economics lecturer with a modest amount of integral calculus at his or her disposal should be able to convince a drowsy audience of environmental ‘tag-alongs’ that this approach contains a useful insight into whether benefits from investments undertaken to avoid future environmental deterioration outweigh the present cost of these investments.

This kind of model often reduces to determining the discount rate (or rates) that should be used to evaluate future benefits. (A discount rate says something about substitution between present and future benefits and costs. For instance, in an article by Kenneth Arrow and a squad of his collaborators (2013), it was recommended that consideration should be given to “whether the benefits of climate policies, which can last for centuries, outweigh the costs, many of which are borne today”. Arrow and his associates stress that dealing with this matter involves the rate at which future benefits are discounted, and the thing that caught my attention was his mentioning that an analysis of this sort might be useful for considering the disposal of nuclear waste.

I had a short talk with Professor Arrow when he was in Sweden to receive his Nobel Prize in economics, and he gave me some invaluable advice on the book I should use to teach mathematical economics, but even so I feel it necessary to say that marginal adjustments of discount rates of the kind discussed in the Arrow article have little or no relevance when dealing with any major issue having to do with nuclear energy!

I still remember teaching – without much enthusiasm – the theory and use of discount rates, but where nuclear energy is concerned, the important answers are in the nuclear past and present, and not fantasies and estimates about the future. They are e.g. in the economic and political history of nuclear and other energy investments in Sweden, and what has happened and will happen in China. Evaluating benefits from nuclear energy primarily involves a thorough understanding of the likely evolution of nuclear technology, although it seems that obtaining this understanding is as difficult as making sense of the Stern project and the crank belief that it was worth launching.

The Swedish Energy Minister has proposed altering Sweden’s energy architecture in such a way as to obtain enough renewables – e.g. wind and solar – to replace all of Sweden’s nuclear assets. Fortunately we know something about how this absurd strategy would play out without bringing discount rates into the discussion, because the cost of electricity in Denmark – which is generally considered the promised land of wind-based energy – is the highest in Europe, while the cost of electricity in Sweden – which has a large nuclear commitment – is among the lowest, and would be the lowest if Swedish governments avoided the advice of quacks. It is also very likely that the nuclear waste problem will be solved in a decade or less by the design and production of integral fast reactors that reprocess all waste within the nuclear cycle. Apparently. The multi-billionaire Bill Gates is financing the construction of one of these devices.

CONCLUDING REMARKS

Occasionally I find it necessary to engage in impromptu debates about nuclear energy, which in order to dominate I sometimes find myself saying that nuclear energy might be capable of playing an important role in any program designed to reduce emissions of Carbon Dioxide (CO2). In addition, because of its reliability, I like to claim that the use of nuclear energy increases the value of renewable facilities.

My argument in this matter usually turns on my knowledge of the situation with greenhouse gases in Sweden and France, which unfortunately means that this hypothesis may not be of interest to half-baked energy experts in many other countries. Frankly I don’t care, because the teaching of energy economics is so pathetic in most countries – to include Sweden – that I lack the patience to provide the necessary explanations. I do however make a point of repeating as often as possible that when Sweden rushed into a nuclear commitment, it was possible to assemble in just under 14 years an inventory of 12 reactors. Furthermore, this was done by a work force with only a modest background in nuclear matters. It is the presence of these reactors and the large hydroelectric sector that explains why – until the curse of electric deregulation came about – Sweden had one of the lowest electric prices in the world where the supply to households was concerned, and probably the lowest price to the industrial sector.
As to be expected, it is always possible to find ladies and gentlemen who are thrilled to the marrow in their bones with the waffle presented in the Stern Review, Take for example Joan Ruddock, Parliamentary Under-Secretary of State for Energy and Climate Change in the UK. She dismissed the criticisms of Stern by distinguished economists like Professors Richard Tol, Partha Dasgupta and Martin Weitzman because – according to her – these economists suffer from “a fundamental misunderstanding of the role of formal, highly aggregated economic modelling in evaluating a policy issue.”
I’m terribly afraid that I must reject that point of view my excellent Ms Ruddock: they do not misunderstand! You and I are guilty of that shortcoming! You because your education in economic theory is worse than inadequate, much worse, and me because although I am only a humble teacher and academic energy economist, the only interest I have or need in what you mistakenly call “aggregated” economic modelling is the slender amount necessary for me to write and publish items like this short note and my forthcoming energy economics textbook (2013).

REFERENCES

Arrow, Kenneth and 13 collaborators (2013). ‘Determining benefits and costs for future
generations’. Science (26 July).
Banks, Ferdinand E. (2013). Energy and Economic Theory (2013). London, New York
and Singapore: World Scientific.
____ . (1977). Scarcity, Energy and Economic Progress. Lexington Massachusetts:
Lexington Books.
Dales, H.H.(1968). Pollution, Property and Prices. Toronto: Toronto University Press.
Harlinger, Hildegard (1975). ‘Neue modelle für die zukunft der menshheit’
IFO Institut für Wirtschaftsforschung (Munich).
Hilsenrath, Jon (2009). ‘Cap-and-trade’s unlikely critics: its creators’. Wall Street Journal
Martin, J-M. (1992). Economie et Politique de L’energie. Paris:Armand Colin.
Michel, Jeffrey H. (2013). Squaring off with CCS: German abandonments prompts
EU policy revisions (Conference paper).
Ramsey, Frank (1928). ‘A mathematical theory of saving’. Economic Journal.
Stern, Nicholas (2007). Stern Review on the Economics of Climate Change. London:
H.M. Treasury.
Yohe, Gary W. (1997). ‘First principles and the economic comparison of regulatory
alternatives in global climate change’. OPEC Review (21.2:75-83).

Comments
  1. Just looked Banks up on the web here http://www.energybiz.com/author/ferdinand-e-banks
    Very impressive. From my first reading of the Stern report I thought it was rubbish not only the supposed science part but the economics. eg using zero discount on supposed benefits, no consideration of technology advances to fix problems if they occur, using inflated cost for amelioration, etc. I agree he would fail an engineering course on costs.
    In Australia Garnaut (who is also a failed economist) based his report on the Stern report and managed to sell it to the Labor Government who have and are showing their financial incompetence by running up a deficit in every year of office and turning a surplus of $66billion to a debt of $300 billion.

  2. hunter says:

    While Dr. Banks is nearly unreadable, his point is strong.
    Yet Stern, Mann, Gore, Gleick, Lewandowsky, etc.etc. etc. get accolades and and their work is lapped up by media and politicians. How this happens is the conundrum.

  3. BoyfromTottenham says:

    Hunter, The answer is simple : bullsh!t baffles brains!

  4. Brian H says:

    The problem of nuclear waste is easily solved by calling it by its proper name: fuel. Modern reactor designs can make excellent use of the unexploited fissionables thrown away in the “waste”.

  5. NikFromNYC says:

    Uppsala is one of the few cities that has a continuous real thermometer records going back to the 1700s and also one of the only two I found that actually does show a recent break from its historical trend so to form a slight hockey stick:
    http://postimg.org/image/knc6vfif1/

    The very oldest records I plotted in 2009:

    And some others of interest:

    Since two or three of the records that go back to the early 1800s or further do show recent warming spikes instead of just a boring continuation of the same trend, if you averaged all the old records, you still get a mild hockey stick especially since noise cancels out to smooth the long hockey stick handle. But mixing in three outliers into over a dozen records that form fuzzy toothpicks instead of hockey sticks is bad practice because it implies that there are hockey sticks in the USA for instance, where there are in fact none.

  6. zenhance says:

    Reblogged this on zenhance.

  7. tchannon says:

    Is always a lot of site/equipment change which is glossed over.

    GHCN V1 has one as does V2
    279 GHCN02458-000 2458 645 0 UPPSALA SWEDEN 59.88 17.6 41 1739 1970

    Jones CRU
    nk SWEDEN 20760 unknown UPPSALA 599 -176 15 1739 1970
    .
    Identical data.

    Still means little, data is altered before it reaches these archives.

  8. edmh says:

    In the last 13 years of since 2000, the CET winter December – March temperatures have shown an even more significant loss -1.45°C. A trend of -0.11°C per year.

    Recently a further more extreme escalation of temperature decline has occurred. In the first half of 2013, January – June, CET temperatures were a full 1.89°C lower than the monthly averages for January – June of the previous 12 years.

    Although the CET relates to a relatively small area of the Northern hemisphere this would seem to be a truly radical change.

    It has been seen throughout Europe and the remainder of the Northern Hemisphere as well. This temperature drop has been mirrored in both hemispheres. That decline has lead to significant crop failures and serious loss of agricultural productivity.

    Having made so many dire predictions of the impending adverse climate catastrophes from overheating, Global Warming / Climate Change advocates fail to accept that a climate change towards a cooler climate is more likely to lead to more intense adverse weather. However there is good reason to expect this, simply because the energy differential between the poles and the tropics is bound to be greater and that in itself leads to less stable atmospheric conditions.

    It has been shown in the past that the warmer climate in the Roman and Medieval warm periods was more conducive to the wellbeing of the biosphere and of man-kind. If it were to get somewhat warmer, the world could well adapt to having larger areas for a more productive agriculture.

    A marginally cooling world as the Northern Hemisphere seen in the years since 2000 leads to much more dire consequences for the biosphere and mankind than any realistic amount of warming that could ever arise from man-made CO2 emissions.

    Cold is a much greater threat than any moderate amount of additional warmth that would result from the release of Man-made CO2.

    National policy makers and the United Nations are neither recognizing nor are they preparing for the eventuality.

    With a quietening sun in solar cycle 24 and probably 25, changing ocean circulation patterns and the present evidence of much colder winter weather in both Hemispheres, that cooling could already be upon us.

    The cooling climate could well last for many decades or even centuries.

    see also
    http://scienceandpublicpolicy.org/originals/global_warming_climate_change.html

  9. edmh says:

    in 2012 Chinese CO2 emissions at 6.7mt/head for its 1.3 billion population are already ~41% greater than the worldwide average. Those emissions are still growing fast.

    At 5.4mt/head, France, with ~80% nuclear electricity generation, has the lowest CO2. emission rates in the developed world and is at only ~12% above the world-wide average.

    China’s CO2 emissions/head exceeded France’s CO2 emissions/head in 2009.

    The UK at 7.2mt/head is only ~50% higher than the world-wide average and only about ~12% higher than China.

    Germany, one of the largest CO2 emitters in Europe, has emissions/head ~100% higher than the worldwide average and is still ~63% higher than China.

    If CO2 emissions really were a concern to arrest Catastrophic Anthropogenic Global Warming / Man-made Climate Change, these results show starkly the real advantage of using Nuclear power for electricity generation.

    This must question the Green attitudes in opposing Nuclear power. Following Fukushima, the German government position of eliminating nuclear power in a country with no earthquake risk and no chance of tsunamis should be untenable.

  10. Sleepalot says:

    To NikFromNYC, I compared Uppsala data from Rimfrost with that from the CRUtem3 dataset, and found a divergence.
    Uppsala - fake trend

  11. Sleepalot says:

    How to manufacture a fake warming trend – Uppsala (example years shown).

    1866 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1
    1876 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 -0.1
    1886 0.0 0.1 0.1 0.1 0.2 0.2 0.3 0.2 0.0 0.0 0.0 0.0
    1896 0.0 0.1 0.3 0.2 0.2 0.4 0.4 0.2 0.1 0.0 0.0 0.0
    1906 0.0 0.1 0.4 0.4 0.4 0.5 0.5 0.2 0.0 0.0 0.0 0.0
    1916 0.0 0.0 0.4 0.4 0.5 0.6 0.7 0.3 0.0 0.0 0.0 0.0
    1926 0.0 0.0 0.5 0.5 0.6 0.7 0.7 0.4 0.0 0.0 0.0 0.0
    1936 0.2 0.3 0.5 0.4 0.6 0.7 0.7 0.4 0.0 0.0 0.1 0.2
    1946 0.3 0.4 0.6 0.4 0.6 0.7 0.8 0.3 0.0 0.0 0.2 0.3
    1956 0.5 0.5 0.5 0.4 0.6 0.3 0.2 0.0 0.0 0.1 0.3 0.4
    1966 0.5 0.5 0.6 0.5 0.6 0.6 0.5 0.2 0.0 0.0 0.3 0.4
    1976 0.4 0.5 0.6 0.5 0.6 0.5 0.5 0.2 0.0 0.0 0.3 0.4
    1986 0.4 0.5 0.6 0.5 0.6 0.5 0.5 0.2 0.0 0.0 0.3 0.4
    1996 0.4 0.7 1.0 0.9 0.9 0.8 0.7 0.6 0.4 0.2 0.4 0.3

  12. Sleepalot says:

    Appologies for not being clear. The above table is a difference table. I took monthly data
    for Uppsala from two sources (CRUtem3 and Rimfrost) and subtracted one from the other. The difference should always be zero, but isn’t: the difference gets bigger with time – the two datsets diverge. The above table shows how the data in one set was altered. The alterations have a distinct pattern and I feel that implies fraud.