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The Economics of Climate Change:
(i) Risks, Targets
(ii) Adaptation
(iii) A Global Deal
Nicholas Stern
UNGA Thematic Debate
31 July 2007
Part One
Impacts and Targets
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 eventual
change in temperature
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
Aggregate estimates of impacts
• Essential to take account of risk
and uncertainty
• Assumptions on discounting, risk
aversion and equity affect the
results
• Models should not be taken too
literally
Baseline High
climate
Climate
Market
impacts
5%
7%
Broad
impacts
11%
14%
Magnitude of effects in middle of plausible range taking into account
sensitivity analysis in review and effects omitted from modelling
Damage function
exponent
Consumption elasticity of social marginal utility (η)
1
1.5
2
2
10.4 (2.2-22.8)
6.0 (1.7-14.1)
3.3 (0.9-7.8)
2.5
16.5 (3.2-37.8)
10.0 (2.3-24.5)
5.2 (1.1-13.2)
3
33.3 (4.5-73.0)
29.3 (3.0-57.2)
29.1 (1.7-35.1)
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.
Part Two
Adaptation
Threats
All countries vulnerable to impacts of climate
change: e.g. London, California
But developing countries hit hardest and earliest
Climate change will threaten all aspects of the
development agenda
• Income poverty and hunger
• Direct and indirect health effects
• Dislocation, migration and conflict
• Some effects already here
Adaptation and development
• Development key to adaptation: enhances
resilience and increases capacity
• Adaptation vital for development progress and
reduces costs of natural disasters
• Adaptation requires economy-wide planning
and regional co-operation
– Leadership and co-ordination is essential: key role
for Heads of Government, Finance and Economic
Ministries
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International support for
adaptation
• Link between development and adaptation has
implications for ODA scale and focus
• Equity requires assistance from rich countries as
main source of climate problem
• Adaptation will put strong pressure on developing
country budgets and ODA: essential to meet
commitments made to double aid flows by 2010
• UNFCCC process and funds essential to support
capacity-building and prioritisation
• Additional ODA flows will be a bigger source of
funding for adaptation and development
Global public goods for adaptation
International action also has a key role in supporting
global public goods for adaptation:
–
–
–
–
–
–
Forecasting climate and weather
Disaster response
More resilient crop varieties
Technologies for water conservation and irrigation
New methods to combat land degradation
Prevention and treatment of malaria and other
water- and vector- borne diseases
Part Three
A Global Deal
A Global Deal
Key elements:
Mitigation
- Targets for mitigation
- Policies for markets
- Policies for technology- Avoiding deforestation
Adaptation: see Part Two.
Key understandings:
• Consistency of (i) growth (ii) climate responsibility (iii)
energy security and other co-benefits
• Importance of potential linkages in international
agreements between climate change, trade,
development, security etc. Need heads of
governments involved externally as well as internally
Targets
• Agree stabilisation level – eventual
concentration (stock) in region of 500ppm CO2e
• Global emissions (flow) cuts of 50% by 2050
relative to 1990
• Rich countries, given historical responsibility,
know-how, ability to pay (incomes) and per
capita emissions to take on national emissions
cuts of 60-90% by 2050 relative to 1990 – 2030% by 2020
• Individual countries to chose own mix of actions
and instruments
Policies (I): Balance of responsibility
and the role of trading
Rich country reductions and trading schemes designed to be
open to trade with other countries, including developing
countries
Supply side from developing countries simplified to allow
much bigger markets for emissions reductions, through
sectoral or technological benchmarking
Together with demonstration and sharing of technologies,
combination of demand and supply side for emissions
reductions can, with appropriate market institutions, provide
incentives for developing countries to play strong role in
global deal, eventually taking on their own targets.
Policies (II): Technology
0.18%
0.16%
France
0.14%
Germany
Japan
0.12%
United Kingdom
0.10%
United States
0.08%
0.06%
0.04%
0.02%
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
0.00%
Public energy R&D investments as a share of GDP
Double public energy R&D ($10bn to £20bn) and increase
deployment support 2-5 times from current $37bn. Share
technologies with developing countries
Policies (III)
Avoiding deforestation
• Curbing deforestation is highly
cost-effective, and significant
• Forest management should be
shaped and led by nation where
the forest stands
• Large-scale pilot schemes could
help explore alternative
approaches to provide effective
international support
• There should be strong
international support for action to
avoid deforestation – e.g. a fund
for five years of $10-15bn per
annum could cut deforestation in
half.
www.sternreview.org.uk
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