Economic impacts of extreme events in the Stern Report

Today via the Prometheus blog a came across this paper on the Mistreatment of the economic impacts of extreme events in the Stern Review Report on the Economics of Climate Change by Roger Pielke Jr., Center for Science and Technology Policy Research, University of Colorado, Global Environmental Change, 17:302-310. The abstract reads,

The Stern Review on the Economics of Climate Change has focused debate on the costs and benefits of alternative courses of action on climate change. This refocusing has helped to move debate away from science of the climate system and on to issues of policy. However, a careful examination of the Stern Review’s treatment of the economics of extreme events in developed countries, such as floods and tropical cyclones, shows that the report is selective in its presentation of relevant impact studies and repeats a common error in impacts studies by confusing sensitivity analyses with projections of future impacts. The Stern Review’s treatment of extreme events is misleading because it overestimates the future costs of extreme weather events in developed countries by an order of magnitude. Because the Stern Report extends these findings globally, the overestimate propagates through the report’s estimate of future global losses. When extreme events are viewed more comprehensively the resulting perspective can be used to expand the scope of choice available to decision makers seeking to grapple with future disasters in the context of climate change. In particular, a more comprehensive analysis underscores the importance of adaptation in any comprehensive portfolio of responses to climate change. (Emphases added.)

If this is right then any policy decisions made by governments to counter climate change based on the Stern Report need stern review. Such an overestimate could badly limit the options that policy makers consider when addressing climate change and led to an unnecessarily extreme policy reaction. Getting the costs and benefits associated with any policy issue right is a necessary first step for sensibly policy making.