The Global Climate Imperative

By Sir Nicholas Stern

In January, scientists issued a stark warning that the Earth's average temperature could increase by as much as 6.4C (11.5F) by the end of this century. If greenhouse gas emissions continue to rise sharply, a jump of 4C (7.2F) would be most likely. It now is clear that the effects of climate change are potentially huge and irreversible.

These scientific findings underscore the urgency of coming to grips with the economics of climate change. Last year, I was asked to review the evidence and advise the British government on this issue. I came to a clear conclusion: that the costs of action to reduce the risks of climate change, while significant, are expected to be much smaller than the economic and human costs of the damage we face if we do nothing.

My analysis shows that global average temperature increases of 4C and above will bring substantial risks to every nation. Indeed, warming on this scale is associated with extreme weather events and serious impacts on food production and water availability in many areas. It also carries the risk of broader shocks such as sudden monsoon rains, significant reductions in water flow in the Nile River valley, and faster rates of sea-level rise--events that could trigger social instability, migration, and even conflict. My review (www.sternreview.org.uk) estimated the long-term damages, averaged over time and across a swath of possible outcomes, to be in the range of 5% to 20% of global consumption.

THE REVIEW HAS STIMULATED intense debate, with most of the response overwhelmingly positive. Yet some critics have focused on three areas. There are still commentators who prefer not to accept the science, despite the mounting evidence. Then there are those who are prepared to disregard future consequences simply because there is a time delay. (My analysis places much lower weight on a future dollar than a dollar spent now, since future generations may have higher consumption.) Still others assume future generations will be able to adapt to the changes. Adaptation is an important response, but there are real limits to what is possible. I believe all these criticisms are profoundly mistaken.

Reducing our dependence on fossil fuels, using cleaner technologies, increasing efficiency, and protecting forests together add up to an effective response that will reduce the risks of climate change and bring a host of other benefits including energy security and improved health. The costs are likely to be in the neighborhood of 1% of global gross domestic product. Yet new lower-emission technologies also will provide economic opportunities for many businesses.

This presents a clear case for action. Reducing greenhouse gas emissions will not damage economic growth, but in the long run climate change itself could undermine growth. So action to reduce emissions is a pro-growth strategy.

Thankfully, this realization is spreading rapidly. Reducing the risks of climate change is a global challenge, and countries around the world have begun to step up to the plate. The European Union has strengthened its trading scheme for emissions and is looking for carbon cuts of up to 30% by 2020. China has set a domestic goal of cutting energy intensity 20% by 2010. India has become one of the fastest-growing markets for renewable energy. And the U.S. is tackling the challenges of energy security and climate change at the federal, state, and local levels.

The next steps should include greater carbon trading to spur reductions wherever they're cheapest. But emerging carbon cap and trade arrangements in the EU, the U.S., and elsewhere must not develop in isolation, since there are big gains to be had from the creation of deep, liquid global markets. Faster development of new technologies is important, and here, too, cooperation yields larger markets for cleaner, more efficient products and a pooling of risks.

If the U.S. can marshal its partners around the world to craft an effective global response to this challenge, I believe there is still time to avoid the worst risks of climate change. But time is running short. If we do not act now, the opportunity may not return.

Views expressed in Outside Shot are solely those of contributors.

To participate in a debate about climate change, click here.

Sir Nicholas Stern, former chief economist at the World Bank, is head of Britain's Government Economic Service.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE