Failure to manage global warming would cripple world economy

The most comprehensive review ever carried out on the economics of climate change warns that global warming could inflict economic disruption as significant as that caused by the two World Wars and the Great Depression. Published on Oct. 30 and launched at the offices of the Royal Society in London, the Stern Review estimates that $9 trillion would be the global economic cost of doing nothing. The review, sent to British Prime Minister Tony Blair and Chancellor Gordon Brown, was commissioned by the chancellor in July last year. Sir Nicholas Stern, chief of the Government Economic Service and former chief economist of the World Bank, compiled the 700-page report. It evaluated a body of scientific studies of global warming from an economic perspective. Sir Nicholas said: "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." 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. 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 5 to 20 percent of the global Gross Domestic Product (GDP) each year, every year. 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 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. The shift to a low-carbon economy would 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. Sir Nicholas outlined three elements of policy that are necessary for an effective response to climate change: "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 recently. "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. "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." 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." 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. Blair said the report should act as a wake-up call to everyone. "The consequences for our planet are literally disastrous," Blair said. "This disaster is not set to happen in some science-fiction future, many years ahead, but in our lifetime," he said. "What is more, unless we act now, not some time distant but now, these consequences, disastrous as they are, will be irreversible." There was no sign, however, that skeptics about capping greenhouse gas emissions would be converted by the review. The White House Council on Environmental Quality called the report "another contribution" to an "abundance of economic analysis" on the issue of climate change. OPEC Secretary-General Mohammed Barkindo took his response a step further, saying the report had "no foundations in either science or economics."