23/04/2014 07:07 BST | Updated 22/06/2014 06:59 BST

Bjorn Lomborg's Upside-Down Economics of Climate Change

A new article by Bjorn Lomborg, which has been made available to newspapers around the world by Project Syndicate, provides a daft upside-down assessment of the economics of climate change.

In his article, Dr Lomborg, who has a PhD in political science, alleges that the new report by the Intergovernmental Panel on Climate Change (IPCC) overturns the findings of the Stern Review and other previous work on the relative costs of action and inaction on climate change. However, his arguments are flawed, and based on fundamental misunderstandings and misinterpretations of economics research.

Dr Lomborg draws attention to the Summary for Policymakers of the contribution of IPCC Working Group II to the Fifth Assessment Report, which was published on 31 March.

He claims that the Summary concludes that "the temperature rise that we are expected to see sometime around 2055-2080 will create a net cost of 0.2-2% of GDP" and hence "while the IPCC establishes that global warming is a problem, the cost is obviously much less than that of the twentieth century's two world wars and the Great Depression".

This is grossly misleading. The Summary states that "global annual economic losses for additional temperature increases of ~2°C are between 0.2 and 2.0% of income", but notes that these estimates are "incomplete" and "vary in their coverage of subsets of economic sectors and depend on a large number of assumptions, many of which are disputable, and many estimates do not account for catastrophic changes, tipping points, and many other factors". It also indicates that "losses accelerate with greater warming".

Hence, the IPCC acknowledges that the estimates cited by Dr Lomborg do not relate to the costs of unmanaged climate change, which, according to the contribution of IPCC Working Group I, could increase global average temperature by 2100 by 4°C or more, not 2°C.

Elsewhere, the Summary warns of a range of impacts that could have very severe economic and social consequences, such as the irreversible melting of the Greenland ice sheet, which contains enough water to raise global sea level by about six metres. Such impacts, which the Summary points out are more likely to occur if global warming exceeds 2°C, are omitted from the estimates cited by Dr Lomborg.

Indeed the economic impacts of unmanaged climate change are likely to be far greater than suggested by the Stern Review, which states:

"Using the results from formal economic models, the Review estimates that if we don't act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more."

The Review concludes:

"Our actions now and over the coming decades could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century".

Since the publication of the Review, its author, Nicholas Stern (who is now Chair of the Grantham Research Institute on Climate Change and the Environment) has pointed out in a paper in the Journal of Economic Literature that its economic modelling probably underestimates the potential impacts of climate change.

Dr Lomborg's article also states that the Summary for Policymakers of the contribution of IPCC Working Group III to the Fifth Assessment Report, which was published on 13 April, "showed that strong climate policies would be more expensive than claimed as well". This is not true.

The Summary estimates that stabilising atmospheric concentrations of greenhouse gases at 450 parts per million of carbon-dioxide-equivalent, offering a 66 per cent chance of avoiding global warming of more than 2°C above 19th century levels, would lower global consumption by between 1 and 4 per cent in 2030, rising to between 3 and 11 per cent in 2100. The Summary indicates that this would be equivalent to reducing a baseline annual growth rate of 1.6 per cent to 3.0 per cent by between 0.04 and 0.14 percentage points. In other words, consumption would grow by 269 per cent between 2010 and 2100 instead of by 317 per cent, in the worst case scenario.

The Summary also stresses that these estimates do not take account of the economic benefits from climate policies, such as reductions in local air pollution, as well as the avoidance of the worst damages and losses from climate change. Dr Lomborg's article ignores these points.

The IPCC estimates are larger than, but consistent with, the Stern Review, published in 2006, which suggests that taking strong action without delay to stabilise atmospheric concentrations at the less stringent target of 550 parts per million of carbon-dioxide-equivalent would cost about 1 per cent of global GDP. Dr Lomborg overlooks these differences between the IPCC report and the Stern Review.

Given his upside-down grasp of the economics of climate change, it is hardly surprising that Dr Lomborg's article fails to share the assessment of the global research community that the risks of inaction against climate change are far greater than the cost of actions to cut greenhouse gas emissions.

Bob Ward is policy and communications director at the Centre for Climate Change Economics and Policy and the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science.