Download Stern Review on the Economics of Climate Change

The Economics of Climate Change
Nicholas Stern
Australian Davos Connection
28th March 2007
Key messages
• The costs of strong and urgent action to avoid serious
impacts from climate change are substantially less than the
the damages thereby avoided
• Even with strong action to reduce greenhouse gas
emissions adaptation must be a crucial part of
development strategy
• Policy requires urgent and international action, pricing for
damages from greenhouse gases, supporting technology
development and combating deforestation
Projected impacts of climate change
0°C
Food
Water
Global temperature change (relative to pre-industrial)
1°C
2°C
3°C
4°C
5°C
Falling crop yields in many areas, particularly
developing regions
Falling yields in many
Possible rising yields in
developed regions
some high latitude regions
Small mountain glaciers
disappear – water
supplies threatened in
several areas
Significant decreases in water
availability in many areas, including
Mediterranean and Southern Africa
Sea level rise
threatens major cities
Ecosystems
Extensive Damage
to Coral Reefs
Rising number of species face extinction
Extreme
Rising intensity of storms, forest fires, droughts, flooding and heat waves
Weather
Events
Risk of Abrupt and
Increasing risk of dangerous feedbacks and
Major Irreversible
abrupt, large-scale shifts in the climate system
Changes
Stabilisation and commitment to
warming
5%
400 ppm CO2e
95%
450 ppm CO2e
550 ppm CO2e
650ppm CO2e
750ppm CO2e
Eventual temperature change (relative to pre-industrial)
0°C
1°C
2°C
3°C
4°C
5°C
4
Delaying mitigation is dangerous and
costly
100
450ppm CO2e
90
500ppm CO2e (falling to
450ppm CO2e in 2150)
Global Emissions (GtCO2e)
80
70
550ppm CO2e
60
50
Business as Usual
40
50GtCO2e
30
65GtCO2e
20
70GtCO2e
10
0
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
•
Stabilising below 450ppm CO2e would require emissions to
peak by 2010 with 6-10% p.a. decline thereafter.
•
If emissions peak in 2020, stabilisation below 550ppm CO2e
requires annual declines of 1 – 2.5% afterwards. A 10 year delay
almost doubles the annual rate of decline required.
Given the costs of impacts, the
cost of mitigation is a good deal
•
Expected cost of cutting emissions consistent with a
550ppm CO2e stabilisation trajectory averages 1% of
GDP per year.
•
Impacts on competitiveness limited but some sectoral
arrangements valuable
•
Opportunities for growth via new technologies
•
Strong mitigation is therefore fully consistent with the
aspirations for growth and development in poor and rich
countries.
6
Key principles of policy
•
Climate change policy:
• Carbon pricing
• R,D&D
• Related market failures and behavioural change
•
Consistency with other policy goals – growth and
energy security
Carbon pricing
•
Price signals can be established in different ways:
greenhouse gas taxes; capping emissions and setting up
a market in permits; or implicitly through regulation.
•
The economics of risk points to long-term goals for
stabilisation of concentrations.
•
The economics of cost points to short-run flexibility over
time, sector and country. Policy makers and markets
should be able to respond to new information on impacts
and costs.
•
Credibility, flexibility and predictability are key if policy is
to influence investment.
Technology needs more than a
carbon price
IEA (2000)
•
•
One element of technology policy is public funding to support
innovation in new technologies.
The Review suggests that:
–
–
•
Global public energy R&D funding should double, to around $20 bn
Deployment incentives should increase 2 to 5 times, from current
level of $34 bn
Promising developments: Pholtovoltaics (new material); cellulosic
biofuels; ‘nanostorage’….
International action
•
Key foundations:
• A common understanding of the scale of the
problem
• Transparency and mutual understanding of
actions and policies
• Structures that sustain cooperation
• Equity
•
Effective action includes:
• Trading
• Technology
• Deforestation
• Adaptation
10
Building international carbon
markets
20000
• Benchmarks for
supply side
• Institutional
structure
18000
Million tonnes CO 2 emissions, 2002
• Scarcity in rich
countries:
demand side
16000
Total emissions from fossil fuels
Emissions from power and industrial sectors (estimated)
14000
12000
10000
8000
6000
4000
2000
0
European Union United States of China, India,
(25)
America
Mexico, Brazil,
South Africa
(+5)
G7
EU25, Jap, Aus,
Can, USA
OECD
Top 20 Global
emitters
Strategies for emission reduction
Four ways to cut
emissions:
•
patterns of demand;
•
improving efficiency;
•
using lower-carbon
technologies;
•
tackling non-energy
emissions.
Adaptation
• Adaptation and development support each other
• Adaptation will put strong pressure on developing
country budgets and ODA: essential to meet
commitments made to double aid flows by 2010
• International action also has a key role in supporting
global public goods for adaptation
– Disaster response
– Crop varieties and technology
– Forecasting climate and weather
Role of Business
• Carbon finance: expansion of EU ETS; new schemes
in US, Australia, Japan; transformation of CDM;
combining carbon finance with domestic investment,
FDI and concessional finance; World Bank Clean
Energy Investment Framework
• International sectoral arrangements
• Technology co-operation: R&D, deployment,
procurement, standards
• Firms should work with various national and
international stakeholders to develop long-term
regulatory frameworks which in turn would create a
stable long-term investment climate
Conclusion from the analysis
•
Unless emissions are curbed, climate change will bring
high costs for human development, economies and the
environment
–
–
Concentrations of 550ppm CO2e and above are associated with very
high risks of serious economic impacts
Concentrations of 450ppm CO2e and below will be extremely difficult to
achieve given where we are now and given current and foreseeable
technology
•
Limiting concentrations within this range is possible.
The costs are modest relative to the costs of inaction.
•
Decisive and strong international action is urgent:
delay means greater risks and higher costs
15
Key messages
• The costs of strong and urgent action to avoid serious
impacts from climate change are substantially less than the
the damages thereby avoided
• Even with strong action to reduce greenhouse gas
emissions adaptation must be a crucial part of
development strategy
• Policy requires urgent and international action, pricing for
damages from greenhouse gases, supporting technology
development and combating deforestation
Projected impacts of climate change
0°C
Food
Water
Global temperature change (relative to pre-industrial)
1°C
2°C
3°C
4°C
5°C
Falling crop yields in many areas, particularly
developing regions
Falling yields in many
Possible rising yields in
developed regions
some high latitude regions
Small mountain glaciers
disappear – water
supplies threatened in
several areas
Significant decreases in water
availability in many areas, including
Mediterranean and Southern Africa
Sea level rise
threatens major cities
Ecosystems
Extensive Damage
to Coral Reefs
Rising number of species face extinction
Extreme
Rising intensity of storms, forest fires, droughts, flooding and heat waves
Weather
Events
Risk of Abrupt and
Increasing risk of dangerous feedbacks and
Major Irreversible
abrupt, large-scale shifts in the climate system
Changes
Stabilisation and commitment to
warming
5%
400 ppm CO2e
95%
450 ppm CO2e
550 ppm CO2e
650ppm CO2e
750ppm CO2e
Eventual temperature change (relative to pre-industrial)
0°C
1°C
2°C
3°C
4°C
5°C
18
Delaying mitigation is dangerous and
costly
100
450ppm CO2e
90
500ppm CO2e (falling to
450ppm CO2e in 2150)
Global Emissions (GtCO2e)
80
70
550ppm CO2e
60
50
Business as Usual
40
50GtCO2e
30
65GtCO2e
20
70GtCO2e
10
0
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
•
Stabilising below 450ppm CO2e would require emissions to
peak by 2010 with 6-10% p.a. decline thereafter.
•
If emissions peak in 2020, stabilisation below 550ppm CO2e
requires annual declines of 1 – 2.5% afterwards. A 10 year delay
almost doubles the annual rate of decline required.
Given the costs of impacts, the
cost of mitigation is a good deal
•
Expected cost of cutting emissions consistent with a
550ppm CO2e stabilisation trajectory averages 1% of
GDP per year.
•
Impacts on competitiveness limited but some sectoral
arrangements valuable
•
Opportunities for growth via new technologies
•
Strong mitigation is therefore fully consistent with the
aspirations for growth and development in poor and rich
countries.
Key principles of policy
•
Climate change policy:
• Carbon pricing
• R,D&D
• Related market failures and behavioural change
•
Consistency with other policy goals – growth and
energy security
Carbon pricing
•
Price signals can be established in different ways:
greenhouse gas taxes; capping emissions and setting up
a market in permits; or implicitly through regulation.
•
The economics of risk points to long-term goals for
stabilisation of concentrations.
•
The economics of cost points to short-run flexibility over
time, sector and country. Policy makers and markets
should be able to respond to new information on impacts
and costs.
•
Credibility, flexibility and predictability are key if policy is
to influence investment.
Technology needs more than a
carbon price
IEA (2000)
•
•
One element of technology policy is public funding to support
innovation in new technologies.
The Review suggests that:
–
–
•
Global public energy R&D funding should double, to around $20 bn
Deployment incentives should increase 2 to 5 times, from current
level of $34 bn
Promising developments: Pholtovoltaics (new material); cellulosic
biofuels; ‘nanostorage’….
International action
•
Key foundations:
• A common understanding of the scale of the
problem
• Transparency and mutual understanding of
actions and policies
• Structures that sustain cooperation
• Equity
•
Effective action includes:
• Trading
• Technology
• Deforestation
• Adaptation
24
Building international carbon
markets
20000
• Benchmarks for
supply side
• Institutional
structure
18000
Million tonnes CO 2 emissions, 2002
• Scarcity in rich
countries:
demand side
16000
Total emissions from fossil fuels
Emissions from power and industrial sectors (estimated)
14000
12000
10000
8000
6000
4000
2000
0
European Union United States of China, India,
(25)
America
Mexico, Brazil,
South Africa
(+5)
G7
EU25, Jap, Aus,
Can, USA
OECD
Top 20 Global
emitters
Strategies for emission reduction
Four ways to cut
emissions:
•
patterns of demand;
•
improving efficiency;
•
using lower-carbon
technologies;
•
tackling non-energy
emissions.
Adaptation
• Adaptation and development support each other
• Adaptation will put strong pressure on developing
country budgets and ODA: essential to meet
commitments made to double aid flows by 2010
• International action also has a key role in supporting
global public goods for adaptation
– Disaster response
– Crop varieties and technology
– Forecasting climate and weather
Role of Business
• Carbon finance: expansion of EU ETS; new schemes
in US, Australia, Japan; transformation of CDM;
combining carbon finance with domestic investment,
FDI and concessional finance; World Bank Clean
Energy Investment Framework
• International sectoral arrangements
• Technology co-operation: R&D, deployment,
procurement, standards
• Firms should work with various national and
international stakeholders to develop long-term
regulatory frameworks which in turn would create a
stable long-term investment climate
Conclusion from the analysis
•
Unless emissions are curbed, climate change will bring
high costs for human development, economies and the
environment
–
–
Concentrations of 550ppm CO2e and above are associated with very
high risks of serious economic impacts
Concentrations of 450ppm CO2e and below will be extremely difficult to
achieve given where we are now and given current and foreseeable
technology
•
Limiting concentrations within this range is possible.
The costs are modest relative to the costs of inaction.
•
Decisive and strong international action is urgent:
delay means greater risks and higher costs
29
www.sternreview.org.uk
30