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UK’s Stern eyes economic and policy responses to climate change

Deborah Halber November 28, 2007 MITEI

As difficult as adapting to climate change will be for rich countries, developing countries will be much more deeply affected, said UK government advisor Nicholas Stern at an MIT Energy Initiative (MITEI) colloquium Monday, Nov. 19.

Although climate change poses severe risks to the economies and societies of the planet, the risk can be radically reduced with strong and timely action on a global scale, Stern said. A global deal involving India, China, and other developing countries will be key, he said, but pushing them too far too fast may backfire.

Policy instruments such as price hikes, tax increases, and cap-and-trade schemes in which companies buy and sell permits to emit carbon will need to be a key part of an emission-limiting global deal, he said. Fixing the carbon price won’t cut the mustard alone, Stern said. Technology will play an important role.

Paul L. Joskow, Elizabeth and James Killian Professor of Economics at MIT, introduced Stern at the Wong Auditorium event. Joskow said Stern began his career as an academic specializing in economic growth and theory and, in 1994, turned to pubic service. Knighted in 2004, Stern was recently appointed to the House of Lords.

Stern, IG Patel Professor of Economics and head of the new India Observatory within the London School of Economic’s Asia Research Centre, served as adviser to the UK government on the economics of climate change and development, and reported to the Prime Minister from 2003-2007. Stern headed the Stern Review on the Economics of Climate Change.

From an economist’s point of view, climate change represents a market failure: one person’s action affects the livelihood of others, but the original person bears none of the costs. Climate change is “the greatest example of market failure the world has ever seen because of the magnitude of the consequences and the fact that we’re all involved,” Stern said.

Stern said his economic and policy analysis is dictated by the scientific premise that human emissions of greenhouse gases are generating climate change which, if unaddressed, will lead to an increase in global temperatures that would cause massive migrations of people away from the equator, plus storms, floods, and droughts that would “make much of the world hard to live in,” he said.

The greenhouse gas carbon dioxide in the earth’s atmosphere is measured in parts per million. Current concentration levels average approximately 430 ppm and are steadily rising, Stern said. At 800 ppm, scientists predict a 50-50 chance of a temperature boost of 5 degrees Celsius, accompanied by severe global consequences. “We have to be clear that at 750 or more ppm, we’re going to live in a world that is extremely uncomfortable and very dangerous,” he said.

The cost to slow the trend would be somewhere between 1 and 2 percent of gross domestic product. A bargain, Stern said, given the cost of inaction. “Most people are willing to take 2 percent of GDP to avoid the scale of damages,” he said. “The cost of action is much less than the cost of inaction.

“We’re close to missing the opportunity of holding at 2 or 3 degrees Celsius,” he said. To stay in the 500 to 550 ppm range will necessitate cutting up to half of our carbon emissions by 2050.

With a world population of 6 billion, each person is responsible for seven tons of emissions. (The US contributes 20 tons per capita, China four, and Africans less than one.) With a global population estimated at 9 billion in 2050, per capita emissions will need to drop two or three tons.

Changing public attitudes will be essential to bring this about. Just as people now recognize that owning carpets produced with child labor, driving drunk, and smoking are irresponsible, deepening public understanding of the dangers of contributing to global warming will be a powerful part of public policy, he said. People will limit their CO2-producing habits because “it’s the right thing to do,” Stern said.

Technology will be of great importance, although no one technology holds all the answers, he said. Different countries will use different technology mixes. Germany, for instance, supports renewables, while France is committed to nuclear power.

Technological solutions will need to keep fossil fuels such as coal in the picture. China has taken serious steps such as reforesting, placing an export tax on energy-intensive goods, and setting high emissions requirements for cars, yet it continues to open coal-fired power plants, at least partly because of its high, immediate energy needs. Nuclear plants would take years to come online.

While India and China understand that they are vulnerable to snow melt runoff raising levels of major rivers in dense population centers, they also understand they are potential deal breakers in the global picture. Stern advised against pushing poor countries too hard too soon. He believes individual countries understand the problem and will eventually choose emission targets within their reach. “They are looking carefully themselves at how they can play a part,” he said.

Stern said that in the past 18 months, he is starting to feel more optimistic. “We are starting, in the rich countries, to get the right kind of discussion going,” he said.

“The changes the world has seen are quite remarkable,” he said. “If we can keep that momentum going with a good summit in Japan, by Copenhagen in 2009 we will have a genuine chance to put this kind of global deal together.”


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