How the Intergovernmental Panel on Climate Change deals with economists

Our arguments have been strongly contested by authors who were involved with the SRES. Interested readers are referred to a series of articles that has appeared in recent issues of the journal Energy and Environment: the first four of these - two on each side - comprise the exchanges between us and the SRES authors, and three further articles have since appeared. Those who would prefer to invest considerably less time can be recommended, first, to two articles from the Economics Focus page of The Economist (February 15 and November 8, 2003), which weigh in on our side, and second, to an official press release issued by the IPCC in December 2003 and now posted, in a somewhat less impolite form than the original version, on the panel’s website. This latter document is concerned to expose our critique as baseless. Among other things, it states, “In recent months some disinformation has been spread questioning the scenarios used by the IPCC” and refers to Castles and me as “so called ‘two independent commentators’”.

Along with our critique, our suggestions for change have been rejected by the panel. The main proposals that we have made are three: 

• That the SRES, because it is open to serious criticisms, should not be taken as the basis and starting point of AR4: an alternative and firmer basis should be sought, through less elaborate and more short-cut procedures than those of the SRES;
• that in assessing possible future developments in the world economy, and ways of projecting them, the involvement of economic historians and historically-minded economists should now be ensured – for the first time; and 
• that more generally, and going well beyond scenario-building, the IPCC process should be broadened, in particular through the active involvement, first, of national statistical offices in member countries, and second, of ministries of finance and economics.

As to the first of the above suggestions, the IPCC has determined that “the SRES scenarios provide a credible and sound set of projections, appropriate for use in the AR4”. As to the other two, the Panel and its member governments appear as fully content with the present established procedures and arrangements for participation. The opening paragraph of the press release referred to above says of the IPCC:

It mobilises the best experts from all over the world, who work diligently on bringing out the various reports… The Third Assessment Review of the IPCC was released in 2001 through the collective efforts of around 2000 experts from a diverse range of countries and disciplines. All of IPCC’s reports go through a careful two stage review process by governments and experts and acceptance by the member governments composing the Panel.

Overstated claims

In relation to economic aspects, there is good reason to question the claims to authority and representative status that the IPCC makes on its behalf. Those of us who are sceptics do not question the numbers of those involved, their diligence, or the existence and observance of formal review processes. But we think that when it comes to the treatment of leading economic issues, the milieu is neither fully competent nor adequately representative. We also hold that building in peer review is no safeguard against dubious assumptions, arguments and conclusions if the peers are all drawn from the same restricted professional environment.

A leading illustration of our case (it is not the only one) is the issue of MERs versus PPPs. Here the internationally agreed System of National Accounts (SNA), which dates from 1993, gives unambiguous guidance. In its opening chapter, it specifies (paragraph 1.38) that:

When the objective is to compare the volumes of goods or services produced or consumed per head, data in national currencies must be converted into a common currency by means of purchasing power parities and not exchange rates … Exchange rate converted data must not … be interpreted as measures of the relative volumes of goods and services concerned.

Despite this ruling, misleading MER-based international comparisons have been uncritically made, not only by the SRES, but also in the reports of both WGII and WGIII; more recently, in a report issued by UNEP; and more recently still, in a document prepared for an IPCC-sponsored conference by one of the three current Vice-Chairs of the panel. It seems probable that not one of the many participants in these various proceedings had heard of the SNA, and it is not referred to in either the text of the SRES or its 17 or so pages of references.

In the context of national accounts, there is a specific error in the SRES which, though only incidental, shows that mere numbers are no guarantee of representative status. On p115 of the Report the concept of GNP - now more usually referred to as GNI - is wrongly defined. This basic error was not picked up by any of the 53 authors, 4 review editors and 89 expert reviewers who are listed as participants in the preparation of the SRES.

In the IPCC press release referred to above, the statement is made that “the economy does not change by using a different metrics (PPP or MEX), in the same way that the temperature does not change if you switch from degrees Celsius to Fahrenheit”. This assertion could be interpreted in different ways, but on any interpretation the analogy appears as false. Admittedly, not all economists would accept without qualification the case for using PPP-based converters, rather than some exchange-rate-based alternative; but even the sceptics do not argue that the choice is immaterial.

In the British case, it might be supposed that one or two members of the Government Economic Service, now said to be 800 strong, not to mention a person from the National Statistics Office, would have been drawn into the economic work of the IPCC and made it less unrepresentative. There is no sign of any such involvement. Speaking in the House of Lords last April on behalf of the responsible department, the Department of the Environment, Food and Rural Affairs, Baroness Farrington said, “The views of Mr Castles and Mr Henderson were considered extremely carefully… by the Government…” If such consideration has indeed been given, its results have not been communicated to me.

A way forward

The economic content of AR4 can be strengthened only if new participants are brought into the process, and this can be achieved only if and in so far as member governments act accordingly: the IPCC milieu appears impervious to unofficial criticism. In this context, it is the central economic departments of state treasuries, ministries of finance or economics, and organisations such as the US Council of Economic Advisers - that have a potentially key role. Up to now, and despite the large amounts that are at stake, they have been content to leave the handling of economic issues within the IPCC process to the departments and agencies directly concerned. The questionable treatment of these issues by the IPCC and its sponsoring organisations, which Castles and I have drawn attention to as independent outsiders, has apparently not been noticed by a single official in a single finance or economics ministry in a single country. It is high time for this situation to change, and for these latter departments to become involved.

Fortunately, a straightforward route to their participation exists for the taking. For the economic departments and agencies in OECD member countries, an instrument is to hand for their prompt collective involvement: it is the OECD itself. They should act now to ensure that IPCC-related economic issues are placed on the agenda of the OECD’s Economic Policy Committee. This could be the start of a process by which economics and economists become more adequately represented in proceedings and decisions where much is at stake.