Failure to Manage Global Warming Would Cripple World Economy

LONDON, UK, October 30, 2006 (ENS) - The most comprehensive review ever carried out on the economics of climate change warns that global warming could inflict worldwide disruption as great as that caused by the two World Wars and the Great Depression. Published today and launched at the offices of the Royal Society in London, the Stern Review estimates that US$9 trillion dollars would be the global economic cost of doing nothing.

The review, sent to Prime Minister Tony Blair and Chancellor Gordon Brown, was commissioned by the chancellor in July last year. It was carried out by Sir Nicholas Stern, head of the Government Economic Service and a former World Bank chief economist.

Sir Nicholas said today, "The conclusion of the review is essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge. Strong, deliberate policy choices by governments are essential to motivate change."

"But the task is urgent," Sir Nicholas warned. "Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close."


Sir Nicholas Stern was the chief economist and senior vice president of the World Bank from 2000 to 2003 and is now head of the UK Government Economic Service. (Photo courtesy Oxonia)
"Climate change will affect the basic elements of life for people around the world - access to water, food production, health, and the environment, the Stern Review states. "Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms."

Prime Minister Blair said the conclusions of the Stern Review should be seen as "the final word" on why the world must act now to limit the damage we are doing to our planet.

In an article for "The Sun," Blair said the report, which he called the most important document on the future he has read since becoming Prime Minister, should act as a wake-up call to everyone.

The first half of the review focuses on the impacts and risks arising from uncontrolled climate change, and on the costs and opportunities associated with action to tackle it.

The review emphasises that economic models over timescales of centuries do not offer precise forecasts but they are an important way to illustrate the scale of effects we might see.

The review finds that all countries will be affected by climate change, but it is the poorest countries that will suffer earliest and most.

Unabated climate change risks raising average temperatures by over 5C from pre-industrial levels. Such changes would transform the physical geography of our planet, as well as the human geography how and where we live our lives.

Adding up the costs of a narrow range of the effects, based on the assessment of the science carried out by the Intergovernmental Panel on Climate Change in 2001, the Review calculates that the dangers of unabated climate change would be equivalent to at least five percent of Gross Domestic Product, GDP, each year, every year.


As the permafrost melts in northern Siberia due to climate change, carbon buried there since the Pleistocene era is bubbling up to the surface of lakes and into the atmosphere as methane, a greenhouse gas 20 times more potent than carbon dioxide. (Photo courtesy FSU)
The review goes on to consider more recent scientific evidence - of the risks that greenhouse gases will be released naturally as the permafrost melts, the economic effects on human life and the environment, and approaches to modeling that ensure the impacts that affect poor people are weighted appropriately.

Taking these together, the review estimates that the dangers could be equivalent to 20 percent of GDP or more.

In contrast, the costs of action to reduce greenhouse gas emissions to avoid the worst impacts of climate change can be limited to around one percent of global GDP each year. People would pay a little more for carbon-intensive goods, but our economies could continue to grow strongly, the review states.

"If we take no action to control emissions, each metric tonne of CO2 that we emit now is causing damage worth at least $85 but these costs are not included when investors and consumers make decisions about how to spend their money," according to the review.

"Emerging schemes that allow people to trade reductions in CO2 have demonstrated that there are many opportunities to cut emissions for less than $25 a tonne," the review states. "According to one measure, the benefits over time of actions to shift the world onto a low-carbon path could be in the order of $2.5 trillion each year."

The shift to a low-carbon economy will bring huge opportunities, the review finds. Markets for low-carbon technologies will be worth at least $500 billion, and perhaps much more, by 2050 if the world acts on the scale required.

Tackling climate change is the pro-growth strategy; ignoring it will ultimately undermine economic growth, Sir Nicholas concludes.

Failure to act will make an increase of between two and five degrees in average temperatures almost inevitable, commented Prime Minister Blair. "The consequences are stark, for our planet and for the people who live on it, threatening the basic elements of life - access to water, food production, health and our environment."

Blair outlined what a rise of between two and three degrees would mean:

The Stern Review concludes that the levels of greenhouse gases in the atmosphere should be limited to somewhere within the range 450 to 550 ppm CO2 equivalent.


Global warming will cause drought in more countries of the world. (Photo courtesy UK Environment Agency)
Anything higher would substantially increase risks of very harmful impacts but would only reduce the expected costs of mitigation by comparatively little, the review states. Anything lower would impose very high adjustment costs in the near term and might not even be feasible, not least because of past delays in taking strong action.

Pre-industrial levels of greenhouse gases in the atmosphere were 280 ppm CO2 equivalent, CO2e. The current concentration is 430 ppm CO2e.

In response to the report, Martin Rees, president of the Royal Society, said, "The Stern Review emphatically points to the need to take prompt and strong action to avoid the worst economic and environmental costs of climate change. This should be a turning point in a debate which has pitted short term economic interests against long term costs to the environment, society and the economy."

"Here in the UK and internationally, we have a responsibility to take action on a number of fronts. We must place a cost on emissions of carbon dioxide from all sources and address the pressing issue of deforestation," Rees said.

Sir Nicholas said today, "Deforestation is responsible for more emissions than the transport sector and there are opportunities to reduce emissions strongly and cost effectively, if the countries where the trees stand are given strong support internationally."

But the Stern Review did not move Australia from its policy of resistance to the Kyoto Protocol, which requires signatories to reduce greenhouse gas emissions by an average of five percent from 1990 levels by the year 2012.

Australia will not sign the Kyoto Protocol and accept mandatory carbon emissions targets despite a new British report that warns that if left unchecked global warming could cost more than either of the world wars or the Great Depression of the 1930s, Prime Minister John Howard said Monday.

Howard and Bush

Prime Minister John Howard of Australia smiles at President George W. Bush during their joint press conference in the White Hou, May 16, 2006. (Photo by Paul Morse courtesy The White House)
"Self-evidently, climate change is occurring," Howard told parliament. "But I am not going to sign up to something that imposes burdens on my country that are not imposed on our competitors."

There was no official reaction to the Stern Review from the United States, which withdrew from the Kyoto Protocol process shortly after President George W. Bush took office in 2001.

U.S. environmentalists came out in support of the Stern Review's warnings.

"Waiting to combat the disastrous impacts of global warming threatens to be an enormous new tax imposed on average Americans," said Philip Clapp of the National Environmental Trust. "This cost, passed on by the oil, utility and auto industries to pay for their pollution, can be avoided by acting now instead of stalling any further."

"The 10 to 20 percent projected drop in economic output the report projects would cut about $5,000 to $25,000 a year from the average American family's income. That's a drop of $350 to $700 a month," said Clapp.

David Hawkins, director of the Climate Center at the Natural Resources Defense Council, said, "The report should shatter once and for all our state of denial on the impacts of global warming. The good news is that solutions are already at hand to avoid a dangerous climate disruption if only our elected leaders decide now to get on with the job."

"If we act swiftly, the devastating effects of global warming are not inevitable," said Hawkins. "By enacting a mandatory cap to slow, stop and reverse global warming pollution; by making our vehicles, our homes and our buildings more efficient; and by speeding to the market the array of cleaner and cheaper renewable sources of energy, we can bequeath to future generations a clean and prosperous world."

Friends of the Earth UK Executive Director Tony Juniper said the review could help the UK to persuade reluctant governments to reduce their carbon emissions.

"The Stern report will provide valuable ammunition to support the UK's leadership role at the international climate talks in Nairobi next month - and should help persuade more reluctant countries to act. The Kyoto Protocol must be strengthened and new ways found of bringing other countries on board - but the government will have a stronger case if it is committed to action at home."

A new UK law to tackle climate change, announced today by Environment Secretary David Miliband, is an important first step in the fight against global warming, Friends of the Earth said. But the organization added that any legislation must include firm annual targets to ensure the UK meets its commitment to cut carbon dioxide emissions.

power plant

The coal-fired Shiheng was the first power plant of the $2.2 billion Shandong Zhonghua Power Project, the largest such project with foreign investment in China. (Photo courtesy CLP Group)
The second half of the Stern Review examines the national and international policy challenges of moving to a low-carbon global economy.

Climate change is the greatest market failure the world has seen, the report states. Today, Sir Nicholas explained that three elements of policy are required for an effective response.

"First, we must establish a carbon price via tax, trade and regulation - without this price there is no incentive to decarbonize," he told the audience at the Royal Society today. The aim should be to build a common global carbon price across countries and sectors.

"Second, we must promote technology: through research and development. Further, private sector investors need confidence that there will be markets for their products: that is why deployment policy also makes sense," he said. A range of low-carbon and high-efficiency products is required.

"And third we must deal with market failure - for example problems in property and capital markets inhibit investments for energy efficiency. Further, the sticks and carrots of incentives, rightly emphasized by we economists, need to be supported by information," Sir Nicholas said. "And still further, greater understanding of the issues can itself change the behavior of individuals and firms."

According to the Stern Review, key elements of future international frameworks should include:

The Stern Review can be downloaded at: