26 Feb 07

Sir Nicholas Stern, the Head of the Government's Economic Service, gave the inaugural James Martin 21st Century School lecture on The Economics of Climate Change at the Examination Schools, Oxford, on 21 February. To a packed lecture hall, Sir Nicholas presented the main conclusions of the Stern Review, and reflected on his interactions with policymakers and others since the Review's publication in October 2006, and on how discussions of policy have moved on around the world.

Sir Nicholas said the scientific debate should be regarded as 'overwhelmingly clear about the human origins of a big part of climate change' and to reject the science now would be 'absurd'. The view that humans could simply adapt to the worst effects, given their possible magnitude, was, in his opinion, 'reckless'; and it was 'unethical' to think that future generations mattered little. His conclusion was that the costs of strong and urgent action would be less than the costs of the impact of climate change if business as usual continued around the globe. He was more optimistic, however, after seeing signs that policymakers were moving in the right direction over the last year.

The Review concludes that the UK should aim to achieve a stabilisation goal of between 450 and 550 parts per million of carbon dioxide (equivalent) in the atmosphere by 2050. At 450 parts per million there would still be a 50 per cent chance of the temperature rising by about two degrees Celsius by the end of the century compared to pre-industrial times. But if business as usual continued, Sir Nicholas said that by 2100 the atmosphere could contain more than 800 parts per million of carbon dioxide and a rise in temperature of five degrees Celsius would be more likely than not - this is the same difference between now and average temperatures during the last Ice Age.

On international policy to tackle climate change, the Review had concluded that equity required that rich countries should cut carbon dioxide emissions by between 60 and 80 per cent by 2050, within an overall global cut of 30%. Sir Nicholas said such discussions had now become intense with California setting an 80 per cent target, France a 75 per cent target, and the UK a 60 per cent target for 2050.

The Stern Review argues that the costs of keeping within the stabilisation goal of below 550 parts per million was equivalent to a reduction in GDP by about one per cent. The International Energy Agency in Paris published a report in November 2006 that carried a similar, or lower, estimate of costs. Here, Sir Nicholas said the development of new technologies and the scale of energy efficiency were factors that could alter the estimated costs.

Sir Nicholas said sticks and carrots should be used to incentivise more responsible behaviour, but that direct discussion of the issue could also promote such behaviour, just as recycling, once something we never did, was now regarded as part of what it was to be responsible.

Carbon pricing (via taxes or cap and trade), international support for countries tackling deforestation, and more development aid for poorer countries needing to adapt to climate change were now the way forward. He also suggested that the amount spent on energy research and development budgets, which had dropped by 50 per cent over the last 25 years, should be doubled to US$20 billion a year.

He concluded: 'Costs of action are much less than the costs of inaction. Action is the growth story; inaction will eventually damage growth. It has to be done internationally. We have to start now, because if we delay even for 20 or 30 years we will have built up stocks (of carbon dioxide) which would place us in a very difficult position.'