Global Insight Perspective | |
Significance | The Stern Review on the Economics of Climate Change has found that the global economy could lose upwards of 20% of its output by 2050, a value of some US$3.68 trillion, if current greenhouse gas (GHG) emissions trends persist. In contrast, the cost of early concerted international action that would reduce the risk of climate change could be achieved through an investment totalling 1% of global GDP per year. |
Implications | Although it has long been held that early climate change action offsets later costs, the Stern report provides the clearest assessment of the stakes involved. Although the costs of acting to stabilise GHG concentrations in the atmosphere are considerable, they are increasingly manageable as the global economy continues to grow. On the basis of current trends, climate change action will become more expensive and less effective in the future. |
Outlook | The review provokes a reconsideration of the adequacy of existing climate change policies in the United Kingdom and beyond. The insistence that more deliberate action is both possible and urgently required to lower GHG emissions trajectories, will feed into the United Kingdom's objectives for discussions at the UN-sponsored international climate change meeting in Nairobi next month. However, hopes for a new global consensus remain low. |
Stern Warning
It was some time in the making and initial impressions suggest that the Stern Review has proven worth the wait. After over a year of development, Sir Nicholas Stern, the former chief economist at the World Bank, published his findings into the economics of global climate change yesterday. The report, commissioned by the U.K. Treasury, represents amongst the most authoritative statements yet produced on the costs and benefits of acting to reduce the risk of global climate change; that is in lieu of the author's standing, the breadth of the research and modelling involved in amassing the 700-page document, and, in particular, the clarity of the vision that has been put forward.
In a sense, what Stern has provided the Treasury with is an assessment that has long been held but never so comprehensively illustrated. The idea that acting early to reduce the concentrations of greenhouse gas (GHG) emissions in the atmosphere associated with global warming and climate change would result in net benefits is well established. However, what Stern's thorough-going Review provides is a standard to measure action against. In perhaps the most important indictment yet offered of the business as usual scenario, in which GHG emissions growth continues virtually unabated, the global economy stands to lose upwards of 20% of its output by 2050. This will be roughly US$3.68 trillion, a loss similar to that seen during the Great Depression, according to Stern. These losses are permanent and relate to the market and social costs associated with the 3ºC average increase in global temperatures, which Stern forecasts will be brought by the atmospheric concentrations of GHG we are fast approaching, in excess of 450 parts per million (ppm). It should be noted that this temperature rise and the costs foreseen are averages; the story is much worse, and indeed, much better, in specific locations.
Call to Action
This disparity is amongst the factors that inform Stern's prescriptions. For in the face of this forecast, which, it should be noted, builds upon an established scientific consensus, there is much that can be done. However, what is possible requires more purposeful action on the part of government than has been seen to this point. Stern puts forward a basket of possible policies and measures, including actions in the well-established areas of international emissions trading, technology transfers, improved efficiency, land and investments in adaptation. Again, these are not revelations in and of themselves, but Stern's findings invigorate their latent force. Under a mix of ideal conditions, the cost of stabilising GHG emissions—of shifting the upwards trend in emission growth and then reversing it to the 450-500ppm range—could be as little as 1% of global GDP per year. Compared with the costs of climate change, every £1 spent now saves £5 down the road.
New Deal?
It is the assumption behind the purchase of those ideal conditions that leaves one troubled. For although the Stern Review offers the best case yet made for immediate action, there is much standing in the way of what may be both preferable and possible. For this reason, one cannot help but note that publication of the report comes at a critical time, both for U.K. climate change policy and the international response to climate change as a whole. The Stern report then might just tip the balance in favour of change, but this is by no means certain. In the United Kingdom recent domestic debates, over everything from fiscal reform and new carbon taxes to local regulatory initiatives, have brought the issue of climate change ever-greater political scope and public recognition. However, the country is still a long way away from the simple act of harmonising its policies in areas like transport and energy to ensure that its stated climate change objectives are met. What Stern is advocating resonates with the United Kingdom's approach to the issue, but also marks an intensification of the effort that the current government has shown itself unable to muster.
For the United Kingdom's posture vis-à-vis its international partners, the Stern Review creates grounds for new understandings, but also the promise of friction. "Act now and with purpose because of the risks entailed" contrasts sharply with the stated position of the United States. for example. Its commitment to "wait and see" could not be further from what Stern has advocated and it can only hope the message is grasped by U.S. authorities, as well as by those in major developing countries like China, ahead of the imminent UN-sponsored climate change conference. This meeting, to be held in Nairobi next month, comes at a juncture when the future direction of the global response is uncertain. There has been a proliferation of different approaches to reducing GHG emissions, indicative of commitment, but the global response as a whole remains fractured and rife with discord. The U.K. government goes to Nairobi with the hopes of securing a new deal by 2008 for the period when the Kyoto Protocol expires in 2012. However, Stern's contribution is rather more limited here. It dealt with the economics alone and, although the numbers it has provided are encouraging, it remains to be seen whether this economic imperative is sufficient to unite the international political community as never before.
Outlook and Implications
Sir Nicholas Stern has made a contribution to the debate over climate change action that is both timely and timeless. His review offers the clearest assessment yet of the benefits of early action to reduce the risks and the costs of global climate change. There can be little doubting that the U.K. and international responses to climate change both stand to benefit from its findings, as each has run aground. Despite being one of the more active proponents of good climate change governance, the United Kingdom has consistently failed to stem the tide of GHG emissions growth. Likewise, the UN climate change agreements have been undermined by poor subscription and worse national implementation. With the upsurge in political engagement across the United Kingdom and around the world, the report shows just where it is we are heading on the basis of this course. U.K. prime minister Tony Blair captured it best when he said that the consequences we are facing are literally disastrous. However, despite the clarity of the message, there is no certainty over what the Stern Review will be remembered for. One can only hope that it will be for action it inspired, rather than the economic and social disaster it foretold.