The Stern Report
18th December, 2006
The Stern report ‘The Economics of Climate Change’ was issued late Oct 2006. It is a mammoth report which spells out in grisly detail the costs of climate change and what we should do about it. The headline conclusion is that unabated climate change could cost the world from 5% to 20% of GDP (Gross Domestic Product) each year, but the cost of reducing emissions could be limited to around 1% of global GDP.
The report only mentions aviation in passing, but the report is so important and the climate implications of aviation growth are so large that we give a summary of the report’s conclusions.
The dangers
- All countries will be affected by climate change, but the poorest countries will suffer earliest and most.
- Average temperatures could rise by 5C from pre-industrial levels if climate change goes unchecked.
- Warming of 3 or 4C will result in many millions more people being flooded. By the middle of the century 200 million may be permanently displaced due to rising sea levels, heavier floods and drought.
- Warming of 4C or more is likely to seriously affect global food production.
- Warming of 2C could leave 15-40% species facing extinction.
- Before the industrial revolution level of greenhouse gases in the atmosphere was 280 parts per million (ppm) CO2 equivalent (CO2e); the current level is 430ppm CO2e. The level should be limited to 450-550ppm CO2.
- Anything higher would substantially increase risks of very harmful impacts. Anything lower would impose very high adjustment costs in the near term and might not even be feasible.
- Deforestation is responsible for more emissions than the transport sector.
- Climate change is the greatest and widest-ranging market failure ever seen.
Recommended actions
- Three elements of policy are required for an effective response: carbon pricing, technology policy and energy efficiency.
- Carbon pricing, through taxation, emissions trading or regulation, will show people the full social costs of their actions. The aim should be a global carbon price across countries and sectors.
- Emissions trading schemes, like that operating across the EU, should be expanded and linked.
- Technology policy should drive the large-scale development and use of a range of low-carbon and high-efficiency products.
- Globally, support for energy research and development should at least double; support for the deployment of low-carbon technologies should be increased my up to five times.
- International product standards could be introduced.
- Large-scale international pilot programmes to explore the best ways to curb deforestation should be started very quickly.
- Climate change should be fully integrated into development policy, and rich countries should honour pledges to increase support through overseas development assistance.
- International funding should support improved regional information on climate change impacts.
- International funding should go into researching new crop varieties that will be more resilient to drought and flood.
Economic impacts
- The benefits of strong, early action considerably outweigh the costs.
- Unabated climate change could cost the world at least 5% of GDP (Gross Domestic Product) each year; if more dramatic predictions come to pass, the cost could be more than 20% of GDP.
- The cost of reducing emissions could be limited to around 1% of global GDP; people could be charged more for carbon-intensive goods.
- Each tonne of CO2 we emit causes damages worth at least $85, but emissions can be cut at a cost of less than $25 a tonne.
- Shifting the world onto a low-carbon path could eventually benefit the economy by $2.5 trillion a year.
By 2050, markets for low-carbon technologies could be worth at least $500bn. - What we do now can have only a limited effect on the climate over the next 40 or 50 years, but what we do in the next 10-20 years can have a profound effect on the climate in the second half of this century.