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Stern Review - the economics of climate change

Stern Review - the economics of climate change

Category: Ethical

Updated: 31/10/2008
First Published: 03/09/2007

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The report on climate change, by Sir Nicholas Stern, described climate change as the 'greatest market failure the world has ever seen' and certain groups criticised the Government for using it as a means to 'pave the way for a whole host of new green taxes'.

What is the Stern Report?

The Chancellor of the Exchequer Gordon Brown commissioned Sir Nicholas Stern, the former chief economist at the World Bank, to undertake an independent report to assess the evidence and build understanding of the economics of climate change.

The review examined:

  • The evidence on the economic impacts of climate change;
  • The economics of stabilising greenhouse gasses;
  • Policies for managing the transition to a low-carbon economy; and
  • Policies for ensuring societies can adapt to the consequences of climate change that can no longer be avoided.

Main conclusions of the Stern Report

1. The worst impacts of climate change can be avoided, if we act now

  • The scientific evidence is overwhelming; and the benefits of strong early action far outweigh the economic cost of not acting.
  • Climate change will affect the basic elements of life, with hundreds of millions of people suffering from hunger, water shortages and coastal flooding.
  • The cost of not acting is estimated to be 5% of global GDP each year, whereas the costs of action can be limited to 1% of global GDP each year.
  • The investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century and the next.
  • Our lack of action could create economic and social disruption on a similar scale to the two world wars and 1930's depression.

2. Climate change will have very serious impacts on growth and development

  • If no action is taken the concentration of greenhouse gasses in the atmosphere could reach double its pre-industrial level as early as 2035 committing us to a global temperature rise of 20C.
  • There's a 50% chance the temperature rise would exceed 50C - equivalent to thechange in average temperatures from the last ice age to today.
  • All countries will be affected with the poorest suffering earliest.
  • It's no longer possible to prevent the climate change that will take place over the next 20 - 30 years, but we can minimise the impact.

3. The costs of stabilising climate change are significant, but manageable

  • The worst effects of climate change can be reduced if greenhouse gasses are stabilised at between 450 and 550ppm CO2.
  • The current level today is 430ppm CO2 and it's rising by more than 2ppm per year.
  • Stabilisation in the 450 - 550ppm range requires emissions to be at least 25% below current levels by 2050.
  • Sustained long-term action can achieve it at costs that are low in comparison to the risks of inaction.

4.Action on climate change doesn't have to restrict growth

  • Action on climate change can create significant business opportunities as new markets are created in low-carbon energy technologies, goods and services.
  • These markets could be worth hundreds of billions of dollars each year and expand employment opportunities.
  • The world doesn't need to choose between averting catastrophe and promoting growth and development.

5. Strong, deliberate policy action is required to cut emissions

  • CO2 emissions can be cut through increased energy efficiency through adoption of clean power, heat and transport technologies.
  • Cuts in non-energy emissions, such as deforestation, agricultural and industrial processes are essential.
  • Three elements of policy are required:
    • The pricing of carbon, implemented through tax, trading or regulation;
    • Support for innovation and the deployment of low-carbon technologies; and
    • Removal of barriers to energy efficiency and to inform, educate and persuade individuals what they can do to respond to climate change

6.Climate change demands an international response

  • Many countries and regions are taking action already - the EU, California and China are among those with the most ambitious policies.
  • But, more ambitious action is now required around the world and key elements of international frameworks for co-operation include:
    • Emissions trading
    • Technology co-operation
    • Action to reduce deforestation
    • Adaption to climate change through International funding

Read our guide on Ethical Money, which will help you understand how your savings, investments, credit card and mortgage can be used to make a positive difference.

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