The report finds that the total impact of climate change on the global economy will be much higher than previously thought. If the global economy continutes to produce emissions at the existing rate the eventual costs will be equivalent 5% of global GDP. If additional factors are included such as direct impacts on the environment and health and the disproportionate share of impact on poor regions, the cost of climate change could increase to the equivalent of around 20% of global GDP.

However, the cost of stabilising emissions at 1990 levels is estimated to be around 1% over the next 44 years.

Stern proposes three mechanisms to stabilise emissions and suggests that they need to be implemented at the same time. They are carbon pricing, supporting improved technology to reduce emissions and offer alternative sources of power and incentives to encourage behavioural change.

Stern also suggests that, while this is a global problem, there is a particular role for local councils to provide community leadership and this view has ben echoed in the Local Government White Paper, Strong and Prosperous Communities (see earlier story in knowledgebase).

Climate change and economics

If the current level of production and release of greenhouse gasses continues the scientific evidence points to increasing risk of irreversible impact on weather conditions across the globe. No country will be unaffected though the effects will vary dramatically from one continent to another the poorest countries are likely to suffer earlier and harder

The current level of greenhouse gases in the atmosphere is equivalent to 430 - 450 parts per million (ppm) compared with only 280 ppm in the late eighteenth century. These increases have already resulted in a half degree (Centigrade) increase in the average world temperature.

With the increasing emissions a level of 550 ppm could be reached by 2035. This could possibly result in an increase of up to 2 degrees. This would result in: -

• Melting glaciers which will allow sea levels to rise increasing flood risk and then threaten water supplies for one sixth of world population.
• Poorer crop yields, especially in Africa, which will leave hundreds of millions without sufficient food.
• Malnutrition, heat stress and diseases such as malaria will increase markedly
• Finely balanced ecosystems will be particularly vulnerable with hundreds of species possibly facing extinction.

Stern warns that, because there is a time-lag between increasing emissions and the effects of climate change, once these impacts are manifest in changing weather patters it will be too late to reverse the process.

Emissions need to be stabilised at 450-550 ppm to avoid the worst impacts of climate change. To achieve a stabilisation at 550 ppm global emissions would need to peak and then fall at a rate of at least 1-3% per yea some time in the next 10-20 years. The Review estimates the annual costs of stabilisation at this level to be around 1% of GDP by 2050 which is a fraction of the cost of the ‘do nothing’ option.

It is not all bad news since there will be opportunities during the transition period to develop new technologies and low carbon products that will have a global demand. Countries like the UK, with good higher education institutions and a tradition of innovation and engineering, are in a good position to capitalise on these opportunities.

How will reduction be achieved?

Carbon trading is a mechanism that already exists (EU Emissions Trading scheme) and identifies the explicit cost of carbon, which can then be bought and sold on an open market. If the supply of carbon permits or credits is controlled it encourages individuals and companies to switch from high to low carbon goods and services. The Review supports broadening the scope of current trading schemes, with the presumption that if the system was universal it would be automatically factored into decision-making.

Stern also promotes the rapid development of low carbon technology but accepts that this sector carries significant risk due to its fledgling status. He suggests that government and industry could work together to share some of the risk.

Encouraging behaviour change requires a range of activities to remove barriers, educate the masses, influence decision making and perhaps even fiscal incentives to focus the decision making of both companies and individuals.

The Review also proposes a policy framework to accommodate and prepare for the changes to climate that will be inevitable due to existing rises in global temperature including better information and risk management tools, changes to land-use planning, climate-sensitive public goods and a financial safety net for the poorest in society who are likely to be most vulnerable to the impacts.

Is the UK alone?

The review makes it clear that no single country or continent can tackle the problem in isolation and suggests that G8 countries will take responsibility for emissions reductions of 60-80% from 1990 levels over the next 44 years. It also postulates that there will be a degree of convergence between currently low emitting countries with high growth rates (e.g. China) which can be expected to increase emissions over the next 44 years and current high emitting countries (e.g. America) which will reduce their emissions by the means outline above.