The Economics of Climate Change

While I firmly hold to my conviction that economic concerns are neither the only, nor even necesarily the paramount ones we need to keep in mind when charting a course through a changing climate, nevertheless economics can't be ignored.

Thus it is very good news that an apparently very reputable and mainstream economist, Sir Nicolas Stern, has presented a very detailed cost-benefit analysis of climate change mitigation and adaptation to the government of England. The report is here. There is a Summary of conclusions, a link to a short executive summary which appears to be an identical document, a long executive summary (27 pages) and the report itself is 27 chapters divided into 6 parts:

1. Climate Change: our approach
2. Impacts of Climate Change on growth and Development
3. The Economics of Stabilisation
4. Policy Responses for Mitigation
5. Policy Responses for Adaptation
6. International Collective Action

The reactions so far seem to be very predictable based on its conclusions, which are as follows (taken from the Summary of Conclusions):

• There is still time to avoid the worst impacts of climate change, if we take
  strong action now.

  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.

• Climate change could have very serious impacts on growth and development.
• 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.

• Action on climate change is required across all countries, and it need not cap the aspirations for growth of rich or poor countries.
• Climate change demands an international response, based on a shared understanding of long-term goals and agreement on frameworks for action.

  Countries facing diverse circumstances will use different approaches to make theircontribution 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.

This summary concludes by presenting four key elements that 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.

It all seems terribly reasonable to me. And the conclusions are generally hopeful.

What could possibly go wrong?