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Climate Change Bill [Lords]

The main criticism of the Stern review is the discount rate that it uses. It is quite difficult to work out what it is because Stern does not tell us, but, working backwards, it looks like about 1.3 or 1.4 per cent. He gets that from saying that the value of our generation and the one living in 3,000 years' time is the same—there should be no pure-time discounting at all. He uses 0.1 per cent., but that is close to zero as makes no difference. The Government's policy is based on Stern, and because he uses a time discount rate of 0.1 per cent., 5 per cent. of the benefits accrue more than 3,000 years in the future, with 93 per cent. accruing more than 200 years in the future. That cannot be a sensible basis for making policy. I am concerned about my children and the world that they live in, and about my grandchildren and the world that they live in, but I do not think that any of us are concerned about the generations that are going to be alive in 3,000 years' time. That is what we are being asked to pay for now. Stern further compounds that error by saying that a sacrifice of 10 per cent. of one's income is the same to a rich person as it is to a poor person. That is effectively what he does, because the world will be much richer in 100 years' time than we are now, but he thinks that we should pay the costs now rather than leave richer generations to pay them in the future. That is like saying that in 1800 we should have legislated to make people living in dreadful conditions in the industrial revolution sacrifice part of their income so that we would not have the problems that we do 200 years later. That is the logic of the argument. On top of that, Stern uses an incredibly low interest rate. The Treasury's benchmark for real returns on capital is 3.5 per cent., that of the World Bank is 8 to 10 per cent. and most American corporations achieve approximately 7 per cent., but Stern uses 1.3 or 1.4 per cent. Of course, such a figure makes future damage much more expensive than a higher figure. If one uses a figure of 4 per cent., the consequences are far fewer. A discount rate of 1.4 per cent. makes $1,650 in 200 years' time worth $100 now, whereas a 4 per cent. discount makes it worth 55c. One can take one's pick, but there is a huge gulf. Stern has picked interest rates at the lowest possible end of the spectrum. Stern also compares one possible solution with doing nothing. One would expect such a study to compare a range of solutions. The most important IPCC scenario that he left out assumed high growth and lower fossil fuel usage—exactly the policy that we all want to pursue. He picked and chose his scenarios and his data, and he chose a low interest rate. The only argument for acting radically now is if there is a tipping point—a point of no return. None of the scientists whom I have read predicts that. Some man-made warming is going on. It is worth taking action now: a price mechanism through carbon tax, energy efficiency and nuclear power are worth pursuing, especially nuclear power. Research into alternative power sources—fusion, carbon capture and adaptive strategies—is also worth conducting. The Stern review is worth recasting along the lines that I suggested. However, if we go down the road that we are following, we sacrifice a huge amount—perhaps 1 or 2 per cent. of GDP—now and for ever, for a problem, most of the consequences of which will not be felt for 200 years.