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Economic review counts costs of climate change

October 30, 2006 By Jim Giles This article courtesy of Nature News.

The United Kingdom's Stern report calls for investment into technologies and adaptation.

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Today the UK government releases a report by their chief economist, Sir Nicholas Stern, on the financial costs of climate change, and the counter-costs of efforts to mitigate or adapt to the changing world. Here unpicks how this report differs from those that have come before, and why it is important.

What's the main conclusion?

That acting now would save enormous sums in the long run. Stern has run models of future economic development and studied estimates of the financial impact of middle-of-the-road estimates for future climate change. He concludes that climate change will knock between 5 and 20 off global gross domestic product (GDP) by the beginning of the next century. That could be reduced to 1 if steps are taken immediately to limit emissions, he says. Investment now will lead to huge savings in the future.

Is that in line with previous economic studies?

Mainly, although the upper figure of 20 is higher than most other estimates, and most previous work has focussed on specific industries, such as agriculture, rather than tackling everything all together. Stern says his estimate is higher because his team considered factors ignored by some other models, such as the fact that poor countries are less well equipped to deal with the impacts of climate change.

Why is this report such a big deal?

Partly because Stern's analyses are much more thorough than previous studies (the review is more than 500 pages long). Also because of who he is. Environmental groups often issue such forecasts. But Stern used to be chief economist at the World Bank. His message will carry a lot more weight with policy-makers around the world.

Is there any shift evident in the report about how people are thinking of tackling climate change?

Yes. Climate debates tend to centre on how to reduce emissions, but Stern has included three chapters on how to adapt to climate change. That makes sense, say economists, because climate change is already happening.

How close are we to Stern's goals for investing in new technologies to reduce emissions or adapt to their consequences?

Nowhere near. The review points out that public spending on energy technologies has actually dropped in recent years. Stern says that the private sector also needs more help in deploying new low-carbon technologies: he wants global spending on the necessary incentives to be increased two- to fivefold.

What about political incentives to reduce emissions, such as the Kyoto Protocol?

Stern's message is that change cannot happen with coordinated political action. The report doesn't go into much detail about the best ways forward, although it does discuss making a global version of the current European emissions trading scheme. That could form a part of the next round of the Kyoto Protocol in 2012; discussions on this are due to take place next week in Nairobi, Kenya.

What will happen with the report now?

Two immediate barriers stand in the way of implementing Stern's message. The United States needs to join an international agreement on emissions (Stern is said to be travelling to the United States later this year to discuss his report). China and India, whose economies are rapidly expanding, also need to be persuaded to buy into low-carbon technologies. If the Stern report helps to convince them of the need to do so, it will have a huge impact.

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