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The Stern Review: The Economics of Climate Change
commissioned by UK Prime Minister & Chancellor in 2006
Some Stern numbers:
2050
the timeframe for most of their economic analyses
550ppm
the CO2 target level of stabilization
5-20%
range of costs to world output associated with climate change
comment: relatively pessimistic view of consequences
-1 to 5%
range of costs associated with stabilizing CO2 at 550ppm
comment: relatively optimistic view of mitigation
$85
cost of one ton of CO2 in Business as Usual (BAU)
$25-35
cost of one ton of CO2 for 550ppm stabilization
2050
2050
2050
IPCC AR4
Stern, 2008
Total cost of climate change in BAU scenario over next two centuries:
-5% of global per capita consumption
however, this 5% number does not take into account:
1) “non-market” impacts (how do you value human health and environmental
impacts?)
2) positive feedbacks in the climate system (such as???)
3) disproportionate impact of climate change on world’s poor (equity)
Including these factors could bring the cost of climate change to -20%!
What action is needed, according to Stern:
1. Carbon pricing (tax or trading)
2. Technology policy (spur development of low-C energy)
3. Remove barriers to behavioral change (enforce changes where
economic incentives are not strong enough)
Adaptation:
1. Improve climate information; esp. regional climate forecasts
2. Land-use and building planning (infrastructure decisions)
3. Natural resource protection, coastal protection, etc
4. Financial safety net for poorest members of society
The Stern Report urgently calls for coordinated, international action,
justified by cost-benefit analysis of climate risks (costs of 5 to -20%)
balanced against mitigation (costs of 1-5%).
2. What is the range of model estimates of the costs of global climate change polic
Economic models give a range of cost estimates due to the number of key variables that
emission reduction goal similar to the Kyoto Protocol:
www.c2es.org
CGE or top-down models generally give marginal costs of $25-200/ton of carbon. T
GDP.
Technology-rich
or bottom-up
models generally
marginal costs of $0-50/ton ca
- run a “top-down”
climate
policy – economic
impactgive
model
of
U.S. GDP. assumptions,
Top [21]
(limitations,
inputs?)
3. Would particular sectors or industries be more affected?
-for a doubling of GHG, benefits of mitigation $55-140billion (0.5-2% GDP)
Sectors responsible for a predominant share of greenhouse gas emissions would b
includes coal
mines, oil
refineries,
natural gas
importers, electricity producers, ceme
-cost of mitigation
0.2-1.5%
GDP
($25-200/ton
of carbon)
pulp mills, steel and other metal companies and glass manufacturers. However me
sectors; these include recycling of revenues from emission permits or taxes, and to
communities and workers. Top [21]
4. How do costs per ton of carbon translate into costs of fuels?
How do we interpret a “price on carbon”?
A carbon price of $50/tC is equivalent to:
12¢/gallon of gasoline: from a base price of $1.50/gallon this is an 8% rise
75¢/mcf of natural gas: from a base price of $3/mcf this is an 25% rise
$25/ton of coal: from a base price of $30/ton this is an 83% rise. Top [21]
5. What economic instruments can be used to control emissions?
McKinsey 2008 report on cost of US GHG reductions
McKINSEY
GLOBAL
ABATEMENT
CURVE