INSTITUTE OF TECHNOLOGY, NIRMA UNIVERSITY, AHMEDABAD - 382481, NOVEMBER 29 – DECEMBER 1, 2007 1
Wake up Call
Review paper on Stern Report
Sanjay P. Gandhi
Department of Chemical Engineering, Institute of Technology,
Nirma University Ahmedabad-382481.
Abstract: How much and how fast should we react opportunities for growth and development along
to the threat of global warming? The Stern Review the way.
argues that the damages from climate change are
large, and that nations should undertake sharp and
The Review considers the economic costs of
immediate reductions in greenhouse-gas emissions.
Based on simple extrapolations, costs of extreme
the impacts of climate change, and the costs and
weather alone could reach 0.5 - 1% of world GDP benefits of action to reduce the emissions of
per annum by the middle of the century, and will greenhouse gases (GHGs) that cause it, in three
keep rising if the world continues to warm. The different ways:
Review takes an international perspective. Climate
change is global in its causes and consequences, • Using disaggregated techniques, in other
and international collective action will be critical in words considering the physical impacts of
driving an effective, efficient and equitable climate change on the economy, on human life
response on the scale required. This response will
and on the environment, and examining the
require deeper international co-operation in many
areas - most notably in creating price signals and resource costs of different technologies and
markets for carbon, spurring technology research, strategies to reduce greenhouse gas emissions;
development and deployment, and promoting
adaptation, particularly for developing countries. • Using economic models, including integrated
assessment models that estimate the economic
Index Terms: climate change, GDP, global impacts of climate change, and macro-economic
warming, models that represent the costs and effects of the
I INTRODUCTION transition to low-carbon energy systems for the
economy as a whole;
Climate change presents a unique challenge
for economics: it is the greatest and widest- • Using comparisons of the current level and
ranging market failure ever seen. The economic future trajectories of the ‘social cost of carbon’
analysis must therefore be global, deal with long (the cost of impacts associated with an additional
time horizons, have the economics of risk and unit of greenhouse gas emissions) with the
uncertainty at centre stage, and examine the marginal abatement cost (the costs associated
possibility of major, non-marginal change. To with incremental reductions in units of
meet these requirements, the Review draws on emissions).
ideas and techniques from most of the important
areas of economics, including many recent From all of these perspectives, the evidence
advances. gathered by the Review leads to a simple
conclusion: the benefits of strong, early action
No-one can predict the consequences of considerably outweigh the costs. The evidence
climate change with complete certainty; but we shows that ignoring climate change will
now know enough to understand the risks. eventually damage economic growth. Our
Mitigation - taking strong action to reduce actions over the coming few decades could
emissions - must be viewed as an investment, a create risks of major disruption to economic and
cost incurred now and in the coming few decades social activity, later in this century and in the
to avoid the risks of very severe consequences in next, on a scale similar to those associated with
the future. If these investments are made wisely, the great wars and the economic depression of
the costs will be manageable, and there will be a the first half of the 20th century. [1]
wide range of
2 NATIONAL CONFERENCE ON CURRENT TRENDS IN TECHNOLOGY, ‘NUCONE – 2007’
The stocks of greenhouse gases in the II Effects on World
atmosphere are rising, as a result of human
activity. The impacts of climate change are not evenly
distributed - the poorest countries and people
will suffer earliest and most. And if and when the
damages appear it will be too late to reverse the
process. Thus we are forced to look a long way
ahead.
Climate change may initially have small
positive effects for a few developed countries,
but is likely to be very damaging for the much
higher temperature increases expected by mid- to
late-century under BAU scenarios.
Figure 1 Greenhouse-gas emissions in 2002, by source
In higher latitude regions, such as Canada,
The current level or stock of greenhouse gases Russia and Scandinavia, climate change may
in the atmosphere is equivalent to around 430 lead to net benefits for temperature increases of 2
parts per million (ppm) CO2, compared with or 3°C, through higher agricultural yields, lower
only 280ppm before the Industrial Revolution. winter mortality, lower heating requirements, and
These concentrations have already caused the a possible boost to tourism. But these regions
world to warm by more than half a degree will also experience the most rapid rates of
Celsius and will lead to at least a further half warming, damaging infrastructure, human
degree warming over the next few decades, health, local livelihoods and biodiversity.
because of the inertia in the climate system.
Developed countries in lower latitudes will be
Even if the annual flow of emissions did not more vulnerable - for example, water availability
increase beyond today's rate, the stock of and crop yields in southern Europe are expected
greenhouse gases in the atmosphere would reach to decline by 20% with a 2°C increase in global
double pre-industrial levels by 2050 - that is temperatures. Regions where water is already
550ppm CO2e - and would continue growing scarce will face serious difficulties and growing
thereafter. But the annual flow of emissions is costs [2]
accelerating, as fast-growing economies invest in
high carbon infrastructure and as demand for • A 5 or 10% increase in hurricane wind speed,
energy and transport increases around the world. linked to rising sea temperatures, is predicted
The level of 550ppm CO2e could be reached as approximately to double annual damage costs, in
early as 2035. At this level there is at least a 77% the USA.
chance - and perhaps up to a 99% chance,
depending on the climate model used - of a • In the UK, annual flood losses alone could
global average temperature rise exceeding 2°C. increase from 0.1% of GDP today to 0.2 - 0.4%
[2] of GDP once the increase in global average
temperatures reaches 3 or 4°C.
• Heat waves like that experienced in 2003 in
Europe, when 35,000 people died and
agricultural losses reached $15 billion will be
commonplace by the middle of the century.
More recent evidence indicates that
temperature may exceed 2-3°C by the end of this
century. This increases the likelihood of a wider
range of impacts than previously considered.
Figure 2 Stabilization levels
Many of these impacts, such as abrupt and large-
INSTITUTE OF TECHNOLOGY, NIRMA UNIVERSITY, AHMEDABAD - 382481, NOVEMBER 29 – DECEMBER 1, 2007 3
scale climate change, are more difficult to • Increased efficiency, which can save
quantify. With 5-6°C warming - which is a real both money and emissions
possibility for the next century - existing models • Action on non-energy emissions, such as
that include the risk of abrupt and large-scale avoiding deforestation
climate change estimate an average 5-10% loss • Switching to lower-carbon technologies
in global GDP, with poor countries suffering for power, heat and transport
costs in excess of 10% of GDP. [3]
The technical potential for efficiency
III Growth & Environment improvements to reduce emissions and costs is
substantial. Over the past century, efficiency in
Emissions have been, and continue to be, energy supply improved ten-fold or more in
driven by economic growth; yet stabilization of developed countries, and the possibilities for
greenhouse-gas concentrations in the atmosphere further gains are far from being exhausted.
is feasible and consistent with continued growth. Studies by the International Energy Agency
show that, by 2050, energy efficiency has the
CO2 emissions per head have been strongly potential to be the biggest single source of
correlated with GDP per head. As a result, since emissions savings in the energy sector. This
1850, North America and Europe have produced would have both environmental and economic
around 70% of all the CO2 emissions due to benefits: energy-efficiency measures cut waste
energy production, while developing countries and often save money.
have accounted for less than one quarter. Most
future emissions growth will come from today’s Even with very strong expansion of the use of
developing countries, because of their more renewable energy and other low carbon energy
rapid population and GDP growth and their sources, hydrocarbons may still make over half
increasing share of energy-intensive industries. of global energy supply in 2050. Extensive
carbon capture and storage would allow this
Stabilization - at whatever level - requires that continued use of fossil fuels without damage to
annual emissions be brought down to the level the atmosphere, and also guard against the
that balances the Earth’s natural capacity to danger of strong climate-change policy being
remove greenhouse gases from the atmosphere. undermined at some stage by falls in fossil-fuel
The longer emissions remain above this level, prices.
the higher the final stabilization level. In the long
term, annual global emissions will need to be IV Challenges & opportunities
reduced to below 5 GtCO2e, the level that the
earth can absorb without adding to the The transition to a low-carbon economy will
concentration of GHGs in the atmosphere. This bring challenges for competitiveness but also
is more than 80% below the absolute level of opportunities for growth.
current annual emissions.[3]
Costs of mitigation of around 1% of GDP are
Achieving these deep cuts in emissions will small relative to the costs and risks of climate
have a cost. The Review estimates the annual change that will be avoided. However, for some
costs of stabilization at 500-550ppm CO2e to be countries and some sectors, the costs will be
around 1% of GDP by 2050 - a level that is higher. There may be some impacts on the
significant but manageable. competitiveness of a small number of
internationally traded products and processes.
Greenhouse-gas emissions can be cut in four These should not be overestimated, and can be
ways. Costs will differ considerably depending reduced or eliminated if countries or sectors act
on which combination of these methods is used, together; nevertheless, there will be a transition
and in which sector: to be managed. For the economy as a whole,
there will be benefits from innovation that will
• Reducing demand for emissions- offset some of these costs. All economies
intensive goods and services undergo continuous structural change; the most
successful economies are those that have the
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flexibility and dynamism to embrace the change. Regulatory measures can play a powerful role in
[4] cutting through these complexities, and
providing clarity and certainty.
Markets for low-carbon energy products are
likely to be worth at least $500bn per year by Information policies can help consumers and
2050, and perhaps much more. Individual businesses make sound decisions, and stimulate
companies and countries should position competitive markets for low-carbon and high-
themselves to take advantage of these efficiency goods and services. Financing
opportunities. measures can also help, through overcoming
possible constraints to paying the upfront cost of
Policy to reduce emissions should be based on efficiency improvements.
three essential elements: carbon pricing,
technology policy, and removal of barriers to Fostering a shared understanding of the nature
behavioral change. of climate change, and its consequences, is
critical in shaping behavior, as well as in
Establishing a carbon price, through tax, underpinning national and international action.
trading or regulation, is an essential foundation Educating those currently at school about climate
for climate-change policy. change will help to shape and sustain future
policy-making, and a broad public and
Putting an appropriate price on carbon – international debate will support today’s policy-
explicitly through tax or trading, or implicitly makers in taking strong action now. [6]
through regulation – means that people are faced
with the full social cost of their actions. This will Adaptation policy is crucial for dealing with
lead individuals and businesses to switch away the unavoidable impacts of climate change, but it
from high-carbon goods and services, and to has been under-emphasized in many countries.
invest in low-carbon alternatives.
Adaptation is the only response available for
Policies are required to support the the impacts that will occur over the next several
development of a range of low-carbon and high- decades before mitigation measures can have an
efficiency technologies on an urgent timescale. effect.
Therefore some adaptation will occur
autonomously, as individuals respond to market
or environmental changes. Some aspects of
adaptation, such as major infrastructure
decisions, will require greater foresight and
planning.
Quantitative information on the costs and
benefits of economy-wide adaptation is currently
limited. Studies in climate-sensitive sectors point
to many adaptation options that will provide
Figure3: The costs of technologies are likely to fall over time benefits in excess of cost. But at higher
temperatures, the costs of adaptation will rise
The removal of barriers to behavioral change sharply and the residual damages remain large.
is a third essential element, one that is The additional costs of making new
particularly important in encouraging the take-up infrastructure and buildings resilient to climate
of opportunities for energy efficiency. change in OECD countries could be $15 – 150
billion each year (0.05 – 0.5% of GDP). [5]
Even where measures to reduce emissions are
cost-effective, there may be barriers preventing Governments have a role in providing a policy
action. These include a lack of reliable framework to guide effective adaptation by
information, transaction costs, and behavioral individuals and firms in the medium and longer
and organizational inertia. term. There are four key areas:
INSTITUTE OF TECHNOLOGY, NIRMA UNIVERSITY, AHMEDABAD - 382481, NOVEMBER 29 – DECEMBER 1, 2007 5
• High-quality climate information and tools The UN Framework Convention on Climate
for risk management will help to drive Change (UNFCCC), Kyoto Protocol and a range
efficient markets. Improved regional climate of other informal partnerships and dialogues
predictions will be critical, particularly for provide a framework that supports co-operation,
rainfall and storm patterns. and a foundation from which to build further
collective action.
• Land-use planning and performance
standards should encourage both private and The need for action is urgent: demand for
public investment in buildings and other energy and transportation is growing rapidly in
long-lived infrastructure to take account of many developing countries, and many developed
climate change. countries are also due to renew a significant
proportion of capital stock. The investments
• Governments can contribute through made in the next 10-20 years could lock in very
long-term polices for climate-sensitive high emissions for the next half-century, or
public goods, including natural present an opportunity to move the world onto a
resources protection, coastal protection, more sustainable path.
and emergency preparedness.
International co-operation must cover all
• A financial safety net may be required for aspects of policy to reduce emissions – pricing,
the poorest in society, who are likely to be technology and the removal of behavioral
the most vulnerable to the impacts and least barriers, as well as action on emissions from land
able to afford protection (including use.
insurance).
Securing broad-based and sustained co-
Sustainable development itself brings the operation requires an equitable distribution of
diversification, flexibility and human capital effort across both developed and developing
which are crucial components of adaptation. countries. There is no single formula that
Indeed, much adaptation will simply be an captures all dimensions of equity, but
extension of good development practice – for calculations based on income, historic
example, promoting overall development, better responsibility and per capita emissions all point
disaster management and emergency response. to rich countries taking responsibility for
Adaptation action should be integrated into emissions reductions of 60-80% from 1990
development policy and planning at every level. levels by 2050. Co-operation can be encouraged
[7] and sustained by greater transparency and
comparability of national action. [9]
V International Collective Action
Creating a broadly similar carbon price signal
An effective response to climate change will around the world, and using carbon finance to
depend on creating the conditions for accelerate action in developing countries, are
international collective action. urgent priorities for international co-operation.
This Review has identified many actions that The transfer of technologies to developing
communities and countries can take on their own countries by the private sector can be accelerated
to tackle climate change. Indeed, many through national action and international co-
countries, states and companies are already operation. The Kyoto Protocol has established
beginning to act. However, the emissions of most valuable institutions to underpin international
individual countries are small relative to the emissions trading. There are strong reasons to
global total, and very large reductions are build on and learn from this approach. There are
required to stabilise greenhouse gas opportunities to explore ways to move forward.
concentrations in the atmosphere. Climate
change mitigation raises the classic problem of Private sector trading schemes are now at the
the provision of a global public good. [8] heart of international flows of carbon finance.
6 NATIONAL CONFERENCE ON CURRENT TRENDS IN TECHNOLOGY, ‘NUCONE – 2007’
Linking and expanding regional and sectoral operation between countries, through
emissions trading schemes, including sub- international frameworks that support the
national and voluntary schemes, requires greater achievement of shared goals. It requires a
international cooperation and the development of partnership between the public and private
appropriate new institutional arrangements. sector, working with civil society and with
Greater international co-operation to accelerate individuals. It is still possible to avoid the worst
technological innovation and diffusion will impacts of climate change; but it requires strong
reduce the costs of mitigation. and urgent collective action. Delay would be
costly and dangerous.
The private sector is the major driver of
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VI Conclusion
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