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Our Changing Climate
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Causes of Climatic Change
Future Climate Trends and Impacts
The Economics of Climate Change
Global Environmental Decision-making
Observations and Science Informing Policy
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Future Challenges

In 2006, the British Government commissioned a report by the economist Sir Nicholas Stern on the effects of climate change and global warming on the world economy. Known as the ‘Stern Review on the Economics of Climate Change’, this is not the first economic report on global warming, but it is significant as the largest, most widely known and most discussed report of its kind.

The Stern Review states, “Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th Century”.

The report gives prescriptions for how to minimise this economic and social disruption. Its main conclusions are that 1% of global gross domestic product (GDP) per annum is required to be invested in order to avoid the worst effects of climate change, and that failure to do so could risk global GDP being up to 20% lower than it otherwise might be – with the prospects being worst for Africa and developing countries.

The Stern Review proposes that it is practical to aim for a stabilisation of greenhouse gas levels in the atmosphere of 500–550 ppm of ‘carbon dioxide equivalent’ by 2050 – which is double pre-industrial levels and compares with 430 ppm today. Even stabilising at that level will probably mean significant climate change. But to stabilise at that level, emissions per unit of GDP would need to be cut by an average of three-quarters by 2050 – a very significant challenge to most of humankind’s lifestyles and consumption patterns.

To meet the Stern Review’s proposed targets, the power sector would need to be decarbonised by 60%–70%, deforestation will also need to be stopped, since emissions from deforestation are estimated at more than 18% of global emissions – more than transport. Deep cuts in greenhouse gas emissions from transport are also needed. The costs of all these changes are estimated by Stern to be around 1% of global GDP by 2050 – so the world would be 1% poorer than it would otherwise have been, which would be significant
but far from prohibitive. This does not mean everyone would be 1% poorer than they are today, but that global growth will be slower.

Using economic modelling to consider reductions in global output resulting from climate change, financial costs of the direct impact on human health and the environment, as well as the feedback mechanisms (which may mean that as the stock of greenhouse gases increases there is a disproportionate rise in warming with each new increment in sions), the Stern Review reaches the stark conclusion that if we do nothing to stem climate change, there could be a permanent reduction in consumption per head of as much as 20% by 2050. These costs will not be shared evenly – there will be a disproportionate burden placed on the world’s poorest countries.

Investing 1% of world GDP to be 20% richer than we will otherwise be sounds like a very attractive proposition. But there are significant hurdles, perhaps the largest of which is that it requires collective, coordinated action by most of the world’s governments, and securing the requisite consensus on the way forward will not be simple. (In the interests of fairness, Stern argues that the richer countries should take responsibility for between 60% and 80% of reductions in emissions from 1990 levels by 2050.)

Assuming that an international consensus can be reached, what is the best way to correct the market failure that is currently threatening to take us on a path to poverty? How do we start to pay a price for carbon that reflects its true economic and social costs, or a price that includes the present value of future climate change? The Stern Review proposes a number of measures:

— establish a carbon price, through tax, trading or regulation, as an essential foundation for climate-change policy;

— urgently implement policies to support the development of a range of low-carbon, high-efficiency technologies;

— remove barriers to behavioural change, and encourage the take-up of opportunities for energy efficiency, such as imposing tighter standards on the energy efficiency of buildings, as well as educating the public about the true costs of wasting energy.

Stabilisation levels and probability ranges for temperature increases. The figure illustrates the types of impacts that could be experienced as the world comes into equilibrium with more greenhouse gases. The top panel shows the range of temperatures projected at stabilisation levels between 400 ppm and 750 ppm CO2e at equilibrium.
The solid horizontal lines indicate the 5 – 95% range based on climate sensitivity estimates from the IPCC 2001 [2] and a recent Hadley Centre ensemble study [3].

The vertical line indicates the mean of the 50th percentile point. The dashed lines show the 5 – 95% range based on eleven recent studies [4]. The bottom panel illustrates the range of impacts expected at different levels of warming. The relationship between global average temperature changes and regional climate changes is very uncertain, especially with regard to changes in precipitation.

This figure shows potential changes based on current scientific literature.
2 Wigley, T.M.L. and Raper, S.C.B. (2001): 'Interpretation of high projections for global-mean warming', Science 293: 451–454 based on Intergovernmental Panel on Climate Change (2001): 'Climate change 2001: the scientific basis. Contribution ofWorking Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change' [Houghton, J.T., Ding, Y., Griggs, D.J., et al. (eds.)], Cambridge: Cambridge University Press.

3 Murphy, J.M., Sexton, D.M.H., Barnett, D.N., et al. (2004): 'Quantification of modelling uncertainties in a large ensemble of climate change simulations', Nature 430: 768–772

4 Meinshausen, M. (2006): 'What does a 2°C target mean for greenhouse gas concentrations? A brief analysis based on multi-gas emission pathways and several climate sensitivity uncertainty estimates', Avoiding dangerous climate change, in Schellnhuber, H.J., et al. (eds.), Cambridge: Cambridge University Press, pp.265–280.




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