The Economics of Climate Change

Sir Nicholas Stern, Head of the Government Economic Service and Adviser to the Government on the economics of climate change and development, UK prepared this report. An abridged version of the report is given below. It would be very helpful for writing essay on similar topic.

There is still time to avoid the worst impacts of climate change, if we take
strong action now.
The scientific evidence is now overwhelming: climate change is a serious global
threat, and it demands an urgent global response.
This Review has assessed a wide range of evidence on the impacts of climate
change and on the economic costs, and has used a number of different techniques to
assess costs and risks. From all of these perspectives, the evidence gathered by the
Review leads to a simple conclusion: the benefits of strong and early action far
outweigh the economic costs of not acting.
Climate change will affect the basic elements of life for people around the world –
access to water, food production, health, and the environment. Hundreds of millions
of people could suffer hunger, water shortages and coastal flooding as the world
warms.
Using the results from formal economic models, the Review estimates that if we don’t
act, the overall costs and risks of climate change will be equivalent to losing at least
5% of global GDP each year, now and forever. If a wider range of risks and impacts
is taken into account, the estimates of damage could rise to 20% of GDP or more.
In contrast, the costs of action – reducing greenhouse gas emissions to avoid the
worst impacts of climate change – can be limited to around 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 in the next. Our actions now and over the coming decades could create risks of major disruption to economic and
social activity, on a scale similar to those associated with the great wars and the
economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes.
So prompt and strong action is clearly warranted. Because climate change is a
global problem, the response to it must be international. It must be based on a
shared vision of long-term goals and agreement on frameworks that will accelerate
action over the next decade, and it must build on mutually reinforcing approaches at
national, regional and international level.
Climate change could have very serious impacts on growth and development.
If no action is taken to reduce emissions, the concentration of greenhouse gases in
the atmosphere could reach double its pre-industrial level as early as 2035, virtually committing us to a global average temperature rise of over 2°C. In the longer term,there would be more than a 50% chance that the temperature rise would exceed 5°C. This rise would be very dangerous indeed; it is equivalent to the change in average temperatures from the last ice age to today. Such a radical change in the
physical geography of the world must lead to major changes in the human geography
– where people live and how they live their lives.
Even at more moderate levels of warming, all the evidence – from detailed studies of
regional and sectoral impacts of changing weather patterns through to economic
models of the global effects – shows that climate change will have serious impacts
on world output, on human life and on the environment.
All countries will be affected. The most vulnerable – the poorest countries and
populations – will suffer earliest and most, even though they have contributed least to the causes of climate change. The costs of extreme weather, including floods,
droughts and storms, are already rising, including for rich countries.
Adaptation to climate change – that is, taking steps to build resilience and minimise
costs – is essential. It is no longer possible to prevent the climate change that will take place over the next two to three decades, but it is still possible to protect our societies and economies from its impacts to some extent – for example, by providing better information, improved planning and more climate-resilient crops and infrastructure. Adaptation will cost tens of billions of dollars a year in developing countries alone, and will put still further pressure on already scarce resources.
Adaptation efforts, particularly in developing countries, should be accelerated.
The costs of stabilising the climate are significant but manageable; delay
would be dangerous and much more costly.
The risks of the worst impacts of climate change can be substantially reduced if
greenhouse gas levels in the atmosphere can be stabilised between 450 and
550ppm CO2 equivalent (CO2e). The current level is 430ppm CO2e today, and it is
rising at more than 2ppm each year. Stabilisation in this range would require
emissions to be at least 25% below current levels by 2050, and perhaps much more.
Ultimately, stabilisation – at whatever level – requires that annual emissions be
brought down to more than 80% below current levels.
This is a major challenge, but sustained long-term action can achieve it at costs that are low in comparison to the risks of inaction. Central estimates of the annual costs of achieving stabilisation between 500 and 550ppm CO2e are around 1% of global
GDP, if we start to take strong action now.
Costs could be even lower than that if there are major gains in efficiency, or if the
strong co-benefits, for example from reduced air pollution, are measured. Costs will
be higher if innovation in low-carbon technologies is slower than expected, or if
policy-makers fail to make the most of economic instruments that allow emissions to
be reduced whenever, wherever and however it is cheapest to do so.
It would already be very difficult and costly to aim to stabilise at 450ppm CO2e. If we delay, the opportunity to stabilise at 500-550ppm CO2e may slip away.
Action on climate change is required across all countries, and it need not cap
the aspirations for growth of rich or poor countries.
The costs of taking action are not evenly distributed across sectors or around the
world. Even if the rich world takes on responsibility for absolute cuts in emissions of 60-80% by 2050, developing countries must take significant action too. But
developing countries should not be required to bear the full costs of this action alone, and they will not have to. Carbon markets in rich countries are already beginning to deliver flows of finance to support low-carbon development, including through the Clean Development Mechanism. A transformation of these flows is now required to support action on the scale required.
Action on climate change will also create significant business opportunities, as new
markets are created in low-carbon energy technologies and other low-carbon goods
and services. These markets could grow to be worth hundreds of billions of dollars
each year, and employment in these sectors will expand accordingly.
The world does not need to choose between averting climate change and promoting
growth and development. Changes in energy technologies and in the structure of
economies have created opportunities to decouple growth from greenhouse gas
emissions. Indeed, ignoring climate change will eventually damage economic growth.
Tackling climate change is the pro-growth strategy for the longer term, and it can be
done in a way that does not cap the aspirations for growth of rich or poor countries.
A range of options exists to cut emissions; strong, deliberate policy action is
required to motivate their take-up.
Emissions can be cut through increased energy efficiency, changes in demand, and
through adoption of clean power, heat and transport technologies. The power sector
around the world would need to be at least 60% decarbonised by 2050 for
atmospheric concentrations to stabilise at or below 550ppm CO2e, and deep
emissions cuts will also be required in the transport sector.
Even with very strong expansion of the use of renewable energy and other lowcarbon
energy sources, fossil fuels could still make up over half of global energy
supply in 2050. Coal will continue to be important in the energy mix around the
world, including in fast-growing economies. Extensive carbon capture and storage
will be necessary to allow the continued use of fossil fuels without damage to the
atmosphere.
Cuts in non-energy emissions, such as those resulting from deforestation and from
agricultural and industrial processes, are also essential.
With strong, deliberate policy choices, it is possible to reduce emissions in both
developed and developing economies on the scale necessary for stabilisation in the
required range while continuing to grow.
Climate change is the greatest market failure the world has ever seen, and it
interacts with other market imperfections. Three elements of policy are required for
an effective global response. The first is the pricing of carbon, implemented through
tax, trading or regulation. The second is policy to support innovation and the
deployment of low-carbon technologies. And the third is action to remove barriers to
energy efficiency, and to inform, educate and persuade individuals about what they
can do to respond to climate change.
Climate change demands an international response, based on a shared
understanding of long-term goals and agreement on frameworks for action.
Many countries and regions are taking action already: the EU, California and China
are among those with the most ambitious policies that will reduce greenhouse gas
emissions. The UN Framework Convention on Climate Change and the Kyoto
Protocol provide a basis for international co-operation, along with a range of
partnerships and other approaches. But more ambitious action is now required
around the world.
Countries facing diverse circumstances will use different approaches to make their
contribution to tackling climate change. But action by individual countries is not
enough. Each country, however large, is just a part of the problem. It is essential to create a shared international vision of long-term goals, and to build the international frameworks that will help each country to play its part in meeting these common goals.
Key elements of future international frameworks should include:
· Emissions trading: Expanding and linking the growing number of emissions
trading schemes around the world is a powerful way to promote cost-effective
reductions in emissions and to bring forward action in developing countries:
strong targets in rich countries could drive flows amounting to tens of billions of
dollars each year to support the transition to low-carbon development paths.
· Technology cooperation: Informal co-ordination as well as formal agreements can
boost the effectiveness of investments in innovation around the world. Globally,
support for energy R&D should at least double, and support for the deployment of
new low-carbon technologies should increase up to five-fold. International cooperation
on product standards is a powerful way to boost energy efficiency.
· Action to reduce deforestation: The loss of natural forests around the world
contributes more to global emissions each year than the transport sector.
Curbing deforestation is a highly cost-effective way to reduce emissions; largescale
international pilot programmes to explore the best ways to do this could get
underway very quickly.
· Adaptation: The poorest countries are most vulnerable to climate change. It is
essential that climate change be fully integrated into development policy, and that
rich countries honour their pledges to increase support through overseas
development assistance. International funding should also support improved
regional information on climate change impacts, and research into new crop
varieties that will be more resilient to drought and flood