The Review on the economics of climate change was published today. It reports to the Prime Minister and Chancellor of Great Britain and has been carried out by Sir Nicholas Stern , Head of the Government Economic Service and former World Bank Chief Economist.
The first half of the report focuses on the impacts and risks arising from uncontrolled climate change, and on the costs and opportunities associated with action to tackle it. Stern emphasizes that tackling climate change is the pro-growth strategy; ignoring it will ultimately undermine economic growth.
Adding up a narrow range of effects listed in the IPCC report 2001 the damage is at least 5% of global GDP per year, now and forever. Including a wider range of risks the damage could be far higher. In contrast the report estimates the costs of reducing greenhouse gas emissions to avoid the worst impacts to around 1% of global GDP per year.
The second half of the report examines the national and international policy challenges of moving to a low-carbon global economy. Climate change is considered as the greatest market failure the world has seen.
Three elements of policy are suggested for an effective response:
- carbon pricing, through taxation, emissions trading or regulation, so that people are faced with the full social costs of their actions
- technology policy, to drive the development and deployment at scale of a range of low-carbon and high-efficiency products
- action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change
Stern concludes by emphasizing the importance of collective action. He claims co-operation between countries, through international frameworks that support the achievement of shared goals. Stern is convinced that it is still possible to avoid the worst impacts of climate change by strong and urgent action whereas delay would be costly and dangerous.