Concerns over Climate Changes are about the Economy

[Menydh]

Stern's report: 'If we act now, we can avoid the very worst'

The Times
October 31, 2006

World economies do not have to suffer while we deal with climate change, said Sir Nicholas Stern


THE economic wellbeing of Britain and the rest of the world depends on changing to a low-carbon global economy, the Government’s chief economist said in a report published yesterday.

Sir Nicholas Stern described climate change as the “greatest and widest-ranging market failure ever seen”, but said that action could and should be taken to avert the worst effects.

In The Economics of Climate Change, commissioned by the Treasury, Sir Nicholas said that the problem could be tackled without stunting economic growth.

He concluded that spending 1 per cent of gross domestic product each year on tackling climate change would save 5 to 20 per cent of GDP by the end of the century, but that Britain could not act alone — it required internationally agreed measures.

“The conclusion of the review is essentially optimistic,” said Sir Nicholas. “There is still time to avoid the worst impacts of climate change if we act now and act internationally. We can grow and be green.”

The report identified carbon pricing, including carbon-emissions trading worldwide and green taxes, improved low- carbon technology, energy efficiency and halting deforestation as the main methods of cutting greenhouse-gas emissions.

In his assessment of global warming Sir Nicholas, head of the Government Economic Service and the former chief economist at the World Bank, said that the scientific evidence was now “overwhelming” that climate change was under way and presented “very serious risks”.

He accepted that the world had warmed up half a degree since the Industrial Revolution and that a minimum of another half degree could be expected over the next few decades. He blamed greenhouse gases created by human activity, such as carbon dioxide and methane. The current level of greenhouse gases in the atmosphere is about 430 parts per million, compared with 280ppm before the Industrial Revolution.

The report said that the level would reach 550ppm by 2050 at the current rate of increase, but that the levels were rising so fast that 550ppm “could be reached as early as 2035”. As levels increase, temperatures are expected to rise. A 550ppm level gives a 77-99 per cent chance of an increase above 2C (3.6F), and doing nothing about emissions gives a 50 per cent risk of a 5C rise by the end of the century.

“Such changes would transform the physical geography of the world,” the report states, with many millions, of people facing starvation, water shortages or homelessness.

The melting of glaciers would initially cause floods but would then leave a sixth of the world population facing water shortages. Sea rises would threaten cities such as London and New York, and a rise of 2C would put 15-40 per cent of wildlife at risk of extinction.

Falling crop yields could leave hundreds of millions of people, especially in Africa, at risk of starvation and, once temperatures have risen by 4C, “global food production is likely to be seriously affected”.

Sir Nicholas said that scientists were clear that the higher the temperature rise the worse the impact on people and economies. Developing countries are likely to be hit hardest, but developed nations will also suffer. The cost of flooding in Britain if temperatures rise 3C or more is estimated at up to 0.4 of GDP and in the US stronger hurricanes are expected to double the costs of wind damage.

Sir Nicholas argued that the stabilisation of greenhouse-gas levels in the atmosphere is possible and will not halt economic growth. He said: “The world does not need to choose between averting climate change and promoting growth and development.

“With strong, deliberate policy choices it is possible to ‘decarbonise’ both developed and developing economies on the scale required for climate stabilisation, while maintaining economic growth in both.”

He ruled out limiting greenhouse-gas levels close to those of today because of the expense, but said that a level of 450-550ppm, causing temperatures to rise by 2-3C, was achievable and desirable environmentally and economically. However, he cautioned: “There is a high price to delay. Weak action in the next 10-20 years would put stabilisation even at 550ppm beyond reach — and this level is already associated with risks.”

Stabilisation at or below 550ppm would require global emissions to reach their peak in 10-20 years and then fall by 1-3 per cent every year, with global emissions in 2050 being 25 per cent of today’s level. By then the world economy is expected to be three or four times more valuable.

The cost of limiting greenhouse gases to a maximum of 550ppm is estimated at 1 per cent of GDP, which is described as “significant but manageable” while simultaneously offering business opportunities as the markets for low-carbon, high-efficiency goods and services expand and removing most of the risks associated with climate change.

The review team assessed the cost of combating climate change by comparing models for the development of low-carbon technologies with the alternative of “business as usual” — doing nothing — at the same time assessing the “system-wide effects” of changing to a low-carbon economy. Improved energy efficiency is highlighted as the biggest area where emissions can be reduced, with the bonus of saving companies money.

In the medium and long term, industry would have to turn to clean power, heat and transport technologies. The power sector would have to reduce carbon emissions by 60-75 per cent by 2050. Efficiency improvements in existing clean technology would be required to provide a competitive alternative to fossil fuels.

Coal and gas would still provide more than half the world’s power by 2050 and Sir Nicholas advocated carbon capture and storage to slash their emissions.

Preventing deforestation is highlighted as a cheap means of reducing emissions. Deforestation has increased world emissions by 18 per cent because trees and other plants store carbon. Wealthy nations should, the report says, compensate poorer logging nations for saving trees.

Sir Nicholas regards the 1 per cent GDP cost as small compared with the risks and costs of climate change.

The development of business opportunities from new technology would be a significant compensation, with markets for low-carbon energy products expected to be worth £300 billion by 2050.

The damage being caused is calculated at £45 per tonne of carbon dioxide and, by comparing the cumulative costs against social costs, the world economy would save an estimated £1.3 trillion by the middle of the century if it limited greenhouse gases to 550ppm.

The report argues: “Innovation driven by strong policy will ultimately reduce the carbon intensity of our economies and consumers will then see reductions in the prices they pay as low-carbon technologies mature.”

Tackling climate change would, the review said, require the introduction of carbon pricing and a range of green taxation schemes.

Among the measures involved would be the expansion of the European Union trading scheme so that it operated worldwide and included more sectors of the economy, including transport. By putting a price on carbon, people — as individuals and in their business roles — would be “faced with the full cost of their actions”.

Technological developments required huge investment and public spending on research had slumped since the 1980s, a trend that needed to be reversed to address climate change.

Changes in behaviour would also be needed and the report called for better information on energy efficiency to be given to the public, while new regulations would help to ensure similar changes from industry.

The Stern report concluded: “It is already very clear that the economic risks of inaction in the face of climate change are very severe. There are ways to reduce the risks. With the right incentives the private sector will respond and can deliver solutions. The stabilisation of greenhouse gas concentrations in the atmosphere is feasible at significant but manageable costs.

“Above all, reducing the risks of climate change requires collective action. It requires co-operation between countries. It requires a partnership between the public and private sector. It is still possible to avoid the worst impacts of climate change but it requires strong and urgent collective action. Delay would be costly and dangerous.”


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