“Current economic models tend to underestimate seriously both the potential impacts of dangerous climate change and the wider benefits of a transition to low-carbon growth. There is an urgent need for a new generation of models that give a more accurate picture,.Existing models fail to account for tipping points and catastrophic repercussions – such as rising sea levels and permafrost thawing – when estimating climate costs,” stated the renowned environmental economist Lord Stern, Chair of the Grantham Research Institute on Climate Change and the Environment.
Writing in the journal ‘Nature’ Stern says that the hard-to-predict impacts that are the most troubling potential consequences of inaction.
Policy makers have been left misguided by these models which suggest that fossil fuels can be consumed in greater quantities without any negative consequences to economic growth.
According to Stern the COP21 Paris Agreement could be nullified unless ‘incremental improvements’ to economic models are introduced.
Stern calls on new models to be introduced which highlight the ‘damage functions’ of economic losses in relation to climate change. These include dynamic stochastic computable general equilibrium (DSGE) models to account for future uncertainties and agent-based models (ABMs), which are widely used in the finance sector.
“There is huge potential in future technologies that can drive change. These are omitted or badly underestimated in our current climate modelling — deeply damaging to our guidance for policy-making. The well-being and prosperity of future generations are worth more,” he asserts.