Peter Lilley Challenges Brown on Climate Change Costs

Peter Lilley has written a damning letter to Ed Miliband, exposing the meaningless figures he has given relating to the cost of climate change. I quote it in full, as it is a classic of its kind...

Dear Secretary of State

You recently slipped out, without notifying Parliament, a massive revision of the estimated costs and benefits of the Climate Change Act.

I hope that on consideration, you will agree that changes amounting to nearly £1 trillion require both discussion in, and explanation to, Parliament. This is particularly important given the extraordinary way the government treated its own original estimates of the costs and benefits of the Climate Change Bill during the Bill’s passage through Parliament.

You will recall that your original estimates of costs and benefits of the Climate Change Bill showed that its potential costs (1) at some £205 billion were almost twice the maximum benefits of £110 billion. This was embarrassing for you because the reason governments are required to publish an Impact Assessment giving estimates of costs and benefits of any Bill is to enable Parliament to “determine whether the benefits justify the costs” (2).

In this case, on the basis of your figures, they clearly did not. Moreover, your initial calculations were based on the original target of reducing emissions by 60%, which was increased to 80% during the passage of the Bill. Normally each extra percentage reduction will require increasing marginal costs and generate declining marginal benefits. So the higher target was likely to make the disparity between costs and benefits even worse.

You nonetheless ignored your own department’s figures, refused to discuss them and proceeded to drive the Bill through – surely the first time any government has recommended Parliament to vote for a Bill which its own Assessment showed could cost far more than the maximum benefits?

However, you promised to produce revised estimates though, rather bizarrely, not in time for Parliament to consider them but after Royal Assent.

Five months have passed since then. Inevitably such a lengthy delay arouses suspicions – aggravated by the scale of the changes – that the figures have had to be heavily massaged to remove the original embarrassment.

The new figures for both costs and benefits have indeed been changed dramatically. As so often in the debate on Global Warming – when the facts don’t fit the theory they change the facts.

As recently as your last departmental question time on 5th March your Minister of State, Joan Ruddock, suggested to me that the original estimate of potential costs of up to £205 billion might be too high. She said “We are likely to find that the costs, which covered a very large range, were exaggerated…” Yet despite correcting for any previous downward bias the revised figures you have now published are not lower but substantially higher. The bottom of the new range for costs is in fact £324 billion – nearly 60% higher than the highest figure I have been quoting. And the top of the range is now £404 billion.

In other words the government now estimates that the Climate Change Act will cost every household in the country between £16,000 and £20,000 each.

When it comes to your revised estimates of the benefits, however, we enter Alice in Wonderland territory. Even though costs have broadly doubled, the embarrassment of them exceeding your own estimate of the maximum benefits has been eliminated. The benefits have been dramatically increased tenfold from £105 billion to over £1 trillion. I congratulate on finding nearly £1 trillion of benefits which had previously escaped your notice.

But surely such an astounding discovery merits explanation? The one element of the revision which is mentioned appears, of itself, to justify doubling estimates based on the previous methodology. But where did the rest of the newly discovered benefits arise from?

As you know, having studied physics at Cambridge, I do not dispute the existence of a greenhouse effect, though I am sceptical about the model building which seeks to amplify it. I support sensible measures to reduce CO2 emissions, economise on hydrocarbon use and help the poorest countries adapt to adverse climate change whatever it cause – as long as the measures we adopt are sensible and cost effective. But we cannot judge what is sensible and cost effective if we do not have reliable figures, and subject them to proper parliamentary scrutiny.

When the Department slips out figures which it appears to be unable to explain, unwilling to debate and which are so flaky they vary by a factor of ten - it can only provoke scepticism.

I should be grateful if you could answer the following questions:

1) When will Parliament be given an opportunity to discuss these new figures?

2) What is the explanation of the huge revisions in costs and, more particularly, benefits?

3) Why has it taken five months to produce these revised figures?

4) What is the purpose of publishing Impact Assessments which are ignored or not available until after Parliament has considered a Bill?

5) Which minister signed off the required declaration that the original Impact Assessment “represented a reasonable view of the likely costs, benefits and impact”?

6) Can you confirm that the costs of the Climate Change Act amount to between £16,000 and £20,000 for every UK household?

7) Can you confirm that the revised cost estimates still exclude transitional costs (which could amount to 1% of GDP up to 2020), ignore the cost of driving British firms overseas, and assume that all businesses identify and immediately apply the most carbon efficient technology available?

8) Can you confirm that although the costs of the Act will fall on UK households the benefits will largely accrue to the rest of the world?

9) Can you confirm that the Climate Change Act binds UK governments to pursue the targets regardless of whether other countries follow our lead (or indeed whether the climate warms or not)?

Yours sincerely

Peter Lilley

(1) Cost estimates exclude transitional costs which were put at about 1% of GDP until 2020, omit the cost of driving carbon intensive UK industries abroad which was said to be significantly likely, and assume that businesses will identify and implement immediately the optimum new carbon efficient technologies.

(2) Impact Assessment Guidance - BERR

I suspect he will get an answer which is less than fulsome in its detail.