30.10.06: SONSTIGE

Stern Review on the Economics of Climate Change

Publication of the Stern Review's final report

Sir Nicholas Stern, Head of the Government Economics Service and Adviser to the Government on the economics of climate change and development, is delighted to present his report to the Prime Minister and the Chancellor of the Exchequer on the Economics of Climate Change:

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Pressemitteilung: 30. Oktober 2006

Publication of the Stern Review on the Economics of Climate change

The most comprehensive review ever carried out on the economics of climate change was published today.

The Review, which reports to the Prime Minister and Chancellor, was commissioned by the Chancellor in July last year. It has been carried out by Sir Nicholas Stern, Head of the Government Economic Service and 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. Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close.”

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. A sound understanding of the economics of risk is critical here. 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 5°C 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 5% of GDP each year.

The Review goes on to consider more recent scientific evidence (for example, 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 modelling 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% 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 1% of global GDP each year. People would pay a little more for carbon-intensive goods, but our economies could continue to grow strongly.

If we take no action to control emissions, each 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. 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. In other words, reducing emissions will make us better off. 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 also bring huge opportunities. Markets for low-carbon technologies will be worth at least $500bn, 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.

The Review looks at what this analysis means for the level of ambition of global action. It concludes that the levels of greenhouse gases in the atmosphere should be limited to somewhere within the range 450 - 550ppm CO2e (CO2 equivalent). Anything higher would substantially increase risks of very harmful impacts but would only reduce the expected costs of mitigation by comparatively little. 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.

The second half of the 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. Three elements of policy are required for an effective response.

The first is carbon pricing, through taxation, emissions trading or regulation, so that people are faced with the full social costs of their actions. The aim should be to build a common global carbon price across countries and sectors.

The second is technology policy, to drive the development and deployment at scale of a range of low-carbon and high-efficiency products. 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. Fostering a shared understanding of the nature of climate change, and its consequences, is critical in shaping behaviour, as well as in underpinning both national and international action.

Effective action requires a global policy response, guided by a common international understanding of the long-term goals for climate policy and strong frameworks for co-operation. 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 co-operation:

Informal co-ordination as well as formal agreements can boost the effectiveness of investments in innovation around the world.
Globally, support for energy research and development should at least double, and support for the deployment of low-carbon technologies should increase up to five-fold.
International co-operation 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; large-scale international pilot programmes to explore the best ways to do this should 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.

Notes for editors

Pre-industrial levels of greenhouse gases in the atmosphere were 280ppm CO2 equivalent (CO2e). The current concentration is 430ppm CO2e.
The Review examined evidence from many different economic models of the impacts of climate change and of the costs and benefits of mitigation. One model, PAGE2002, was used to illustrate the results from considering new scientific evidence and a wider range of impacts. This model was chosen because it specifically allows for a rigorous statistical treatment of risk and uncertainty.
The Stern Review can be downloaded at www.sternreview.org.uk. Background on the Review, including the terms of reference and responses to the Call for Evidence, can also be found here.
Sir Nicholas Stern is Head of the Government Economic Service, and Adviser to the UK Government on the Economics of Climate Change and Development. He is a former Chief Economist of the World Bank.

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Stern Review final report

Part I: Climate change: our approach (Chapters 1-2)	Introduction
	Chapter 1: The science of climate change
	Chapter 2: Economics, ethics and climate change
	Chapter 2 Technical annex: Ethical frameworks and intertemporal equity
Part II: Impacts of climate change on growth and development (Chapters 3-6)	Introduction
	Chapter 3 How climate change will affect people around the world
	Chapter 4 Implications of climate change for development
	Chapter 5 Costs of climate change in developed countries
	Chapter 6 Economic modelling of climate change impacts
Part III: The economics of stabilisation (Chapters 7-13)	Introduction
	Chapter 7 Projecting the growth of greenhouse gas emissions
	Chapter 8 The challenge of stabilisation
	Chapter 9 Understanding the costs of mitigation
	Chapter 10 Macroeconomic models of costs
	Chapter 11 Structural change and competitiveness
	Chapter 12 Opportunities and wider benefits from climate policies
	Chapter 13 Defining a goal for climate change policy
Part IV: Policy responses for mitigation (Chapters 14-17)	Introduction
	Chapter 14 Harnessing markets to reduce emissions
	Chapter 15 Carbon markets in action
	Chapter 16 Accelerating technological innovation
	Chapter 17 Beyond carbon markets and technology
Part V: Policy responses for adaptation (Chapters 18-20)	Introduction
	Chapter 18 Understanding the economics of adaptation
	Chapter 19 Adaptation policies: key principles and applications in the developed world
	Chapter 20 The role of adaptation in sustainable development
Part VI: International collective action (Chapters 21-27)	Introduction
	Chapter 21 Framework for understanding international collective action for climate change
	Chapter 22 Creating a global price for carbon
	Chapter 23 Supporting the transition to a low carbon economy in developing countries
	Chapter 24 Promoting effective international cooperation on technology
	Chapter 25 Reversing emissions from land use change
	Chapter 26 International support for adaptation
	Chapter 27 Building international co-operation on climate change

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Background to Stern Review on the Economics of Climate Change

The Chancellor announced on 19 July 2005 that he had asked Sir Nick Stern to lead a major review of the economics of climate change, to understand more comprehensively the nature of the economic challenges and how they can be met, in the UK and globally.

Terms of Reference

The terms of reference of the review are to:

Examine the evidence on:

The implications for energy demand and emissions of the prospects for economic growth over the coming decades, including the composition and energy intensity of growth in developed and developing countries;
The economic, social and environmental consequences of climate change in both developed and developing countries, taking into account the risks of increased climate volatility and major irreversible impacts, and the climatic interaction with other air pollutants, as well as possible actions to adapt to the changing climate and the costs associated with them;
The costs and benefits of actions to reduce the net global balance of greenhouse gas emissions from energy use and other sources, including the role of land-use changes and forestry, taking into account the potential impact of technological advances on future costs; and
The impact and effectiveness of national and international policies and arrangements in reducing net emissions in a cost-effective way and promoting a dynamic, equitable and sustainable global economy, including distributional effects and impacts on incentives for investment in cleaner technologies

Consult with key stakeholders, internationally and domestically, to understand views and inform analysis.

Based on this evidence, provide:

An assessment of the economics of moving to a low-carbon global economy, focusing on the medium to long-term perspective, and drawing implications for the timescales for action, and choice of policies and institutions.
An assessment of the potential of different approaches for adaptation to changes in the climate.

Assess how this analysis applies to the specific case of the UK, in the context of its existing climate change goals.

Produce a report to the Prime Minister and Chancellor by Autumn 2006.

Call for Evidence

At the outset of the Review, Nick Stern invited interested stakeholders in the UK and the rest of the world, including academic, private sector, scientific, NGO and other experts, to submit evidence on all areas relevant to the Terms of Reference. The formal deadline for submitting evidence has now passed. However, the Review team will endeavour where possible to consider material we receive in the future via the contact details listed below:

List of Responses to the Stern Review on the Economics of Climate Change: Call for Evidence

Stern Review
2nd Floor, Room 35/36
HM Treasury
1 Horse Guards Road
London SW1A 2HQ
Email: callforevidence@sternreview.org.uk

Oxford Institute of Economic Policy Distinguished Lecture: 'What is the Economics of Climate Change?’

Sir Nicholas Stern, Head of the Stern Review on the Economics of Climate Change, gave a keynote lecture to the Oxford Institute of Economic Policy as part of their distinguished lecture series entitled ‘What is the Economics of Climate Change?’on the evening of Tuesday 31 January. This paper sets out the key approaches and questions for the Stern Review. The deadline for reactions to this paper has now passed however we will endevour to consider belated responses received either by email (oxonia.responses@sternreview.org.uk ) or by post to the address below. The responses received can be viewed via the link below.

Links to key documents relating to Oxford Institute of Economic Policy Distinguished Lecture:

Following Sir Nick Stern’s speech to Oxonia on 31 January and the papers published alongside it, a summary article setting out these arguments has been published in World Economics. The journal also includes a critique of the work by Byatt et al, and a reply to Byatt et al from Nick Stern. The Byatt et al paper was previously published on this website as part of the responses to the Oxonia speech, alongside the other responses received. All these responses are being considered as part of the evidence base for the Review"

Other Presentations by Sir Nicholas Stern

Stern Review Analysis on Chinese Energy Markets

In response to the increasing importance of China in the global economy, the Stern Review commissioned research by the Chinese Academy of Social Sciences into the key economic and policy issues affecting its domestic energy markets. A report summarising this work is available via the link below.

PDF file of report by Chinese Academy of Social Sciences: Understanding China´s Energy Markets (356KB)

Stern Review Transport Seminar in January 2006

The Stern Review hosted a seminar to discuss the drivers behind global growth in emissions from transport and the prospects for new technologies to reduce emissions.

Related links:

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Stern Review on the economics of climate change

Supporting Research commissioned as part of the Stern Review

Below is a list of research commissioned as part of the Stern Review into the Economics of Climate Change. The views expressed in the documents below are those of the authors and do not reflect the views of the Stern Review.

Part	Researcher	Study
I: Climate change: our approach (Chapters 1-2)	John Broome (University of Oxford)	Valuing policies in response to climate change: some ethical issues
I: Climate change: our approach (Chapters 1-2)	Cameron Hepburn (St Hugh’s College, University of Oxford)	Discounting climate change damages
II: Impacts of climate change on growth and development (Chapters 3-6)	Rachel Warren and others (Tyndall Centre)	Understanding the regional impacts of climate change (Tyndall Centre Working Paper 90)
	Rachel Warren and others (Tyndall Centre)	Spotlighting the impacts functions in integrated assessments (Tyndall Centre Working Paper 91)
	Andrew Challinor and others(University of Reading)	Indian Monsoon
	Nigel Arnell (University of Southampton)	Global impacts of abrupt climate change: an initial assessment
	David Anthoff and others (Tyndall Centre)	Global and regional exposure to large rises in sea-level: a sensitivity analysis (Tyndall Centre Working Paper 96)
	JC Nkomo and others	The impacts of climate change in Africa: Main report , Summary matrix
	Gustavo Nagy and others	Understanding the potential impact of climate change and variability in Latin America and the Caribbean
	Joyashree Roy (Jadavpur University)	The economics of climate change: a review of studies in the context of South Asia with a special focus on India
	Lin Erda and Zhou Ji	Climate change impacts and its economics in China
	Ed Anderson (ODI)	Potential impacts of climate change on $2-a-day poverty and child mortality in Sub-Saharan Africa and South Asia (forthcoming)
III: The economics of stabilisation (Chapters 7-13)	Dennis Anderson (Imperial College)	Costs and finance of abating carbon emissions in the energy sector
	Terry Barker and others (4CMR, University of Cambridge)	The costs of greenhouse gas mitigation with induced technological change: a meta-analysis of estimates in the literature
	David Norse (UCL)	Key trends in emissions from agriculture and use of policy instruments (forthcoming)
IV: Policy responses for mitigation (Chapters 14-17)	Cameron Hepburn(St Hugh’s College, University of Oxford)	Regulating by prices, quantities or both: an update and an overview
	Research Centre for Sustainable Development, Chinese Academy of Social Sciences	Understanding China’s energy policy: economic growth and energy use, fuel diversity, energy/carbon intensity, and international cooperation
	The Auto Project	Climate Change Mitigation Strategies for the Transportation Sector in China
	Zhang Anhua and Zhao Xingshu	Efficiency Improvement and Energy Conservation in China’s Power Industry
	Li Junfeng, Shi Jinli and Ma Lingjuan	China: Prospect for renewable energy development
	Zhang Qun, Beijing University of Science and Technology	Chinese iron and steel industry development and environment protection
	Alan Ingham (University of Southampton)	Climate change, mitigation and adaptation with uncertainty and learning
	Richard Klein (Potsdam)	Climate policy in the face of uncertainty: the roles of adaptation and mitigation
V Policy responses for adaptation (Chapters 18-20) All of these papers were presented at a Stern Review Workshop on the “Economics of Adaptation” on 9 May 2006	Sam Fankhauser (EBRD)	The economics of adaptation
	Frans Berkhout (Free University, The Netherlands)	Rationale for adaptation in EU climate change policies
	Mac Callaway (UNEP) and Molly Hellmuth (IRI, Columbia University)	Climate risk management for development: economic considerations
	Merylyn Hedger (Environment Agency)	Assessing the costs and benefits of adaptation: perspectives from the front line
	Jane Milne (ABI)	Assessing the costs and benefits of adaptation to climate change
	Richard Boyd and Alistair Hunt (Metroeconomica)	Costing the local and regional impacts of climate change using the UKCIP costing methodology
	Karen O’Brien (University of Oslo)	The economics of adaptation
	Saleemul Huq (IIED)	Statement to the workshop on economics of adaptation
VI International collective action (Chapters 21-27)	International Rice Research Institute	Climate change and rice cropping systems: potential adaptation and mitigation strategies
	William Blyth and Kirsty Hamilton (Chatham House)	Aligning climate and energy policy - creating incentives to invest in low carbon technologies in the context of linked markets for fossil fuel, electricity and carbon
	Maryanne Grieg-Gran (IIED)	The cost of avoiding deforestation
	Max Tse (Nuffield College, University of Oxford)	A theoretical note on cross-border interactions between carbon abatement schemes
	Duan Maosheng (Tsinghua University, Beijing)	Technology based CDM: a conceptual framework

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