UK Treasury Climate Modelling ‘deeply flawed’, claims report

Economic modelling used by the UK Treasury to assess the costs of action on climate change 'should be treated with extreme caution', according to a new report commissioned by Friends of the Earth and WWF-UK.

The report, entitled ‘(Mis)understanding Climate Policy’, investigates the modelling conducted by HMRC, which assesses the impact of the UK’s carbon budgets on GDP.

It reveals that the current model ignores the economic impacts of climate change – such as the recent floods – along with the job-creation potential of the ever-growing low-carbon industries (scroll down for full report).

“Rapid reduction in carbon emissions will improve public health, create new jobs, and help launch promising new industries and technologies,” said the report’s lead author and Harvard economist Dr Frank Ackerman.

“An approach that ignores all these benefits – as the HMRC CGE model does – is sure to misunderstand the real economics of climate policy.

“A person who chooses to wear a blindfold will often report that there is nothing to see, but this tells us more about the viewer than his surroundings. The same is true for economic approaches that are blindfolded by their own assumptions, unable to see that they are surrounded by multiple good reasons for a proactive response to the threat of climate change.”

Weak assumptions

The HMRC model finds that the fourth carbon budget, as currently planned, would reduce GDP by more than a weaker carbon budget. However, the report discovered that this finding is entirely down to ‘weak assumptions’. Including very conservative figures for the economic benefits of reducing air pollution can easily wipe out this apparent loss of GDP, for example.

Ackerman and fellow co-author Joseph Daniel, from Synapse Energy Economics, concluded that the model’s findings should be treated with caution, advising that the Treasury and HMRC should open up the ‘secretive model’ to public scrutiny.

Friends of the Earth economics campaigner David Powell said: “This report lifts the lid on the Treasury’s secretive economic modelling on climate change and shows that it’s riddled with flaws and worrying omissions.

“The one-sided model focuses disproportionately on the costs of developing a low-carbon future, while downplaying or overlooking key benefits – and completely ignores the damaging impacts of climate change on our economy. That’s like moaning about the cost of building a new hospital without considering the benefit of saving lives.

“David Cameron mustn’t allow his Chancellor to point to skewed economic models to help torpedo crucial efforts to put the UK in the forefront of tackling climate change. The longer we take to slash carbon emissions, the more costly it will be for us all.” 

(Mis)understanding Climate Policy: Full report

Luke Nicholls

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