Stern Review warns of the cost of climate change

Failing to tackle climate change could cost the world economy up to 20 per cent of its output, according to a major report for the government by Sir Nicholas Stern.

The Stern Review on the Economics of Climate Change was published on 30 October. Stern, a former chief economist of the World Bank, said acting now would cost around 1 per cent of global output each year.

The costs of doing nothing

The report says that if nothing is done, the damage caused by climate change could reduce global output by at least 5 per cent a year, now and forever. If a wider range of risks is taken into account, the cost could rise to 20 per cent or more.

Rising sea levels, floods, droughts and extreme weather could displace millions of people, damage crops and threaten water supplies. Poorer countries would be hit hardest.

Stern compares the potential economic disruption to that of the great wars and the Great Depression of the 1930s.

The case for acting

The report argues that the costs of reducing greenhouse gas emissions are much smaller than the costs of doing nothing. By investing in cleaner energy, improving energy efficiency and stopping deforestation, the world could limit the worst effects.

Stern calls climate change the greatest and widest-ranging market failure ever seen, because the people who cause pollution do not pay for the damage it does.

What should be done

The report recommends putting a price on carbon, through taxes, trading schemes or regulation, so that polluters pay for their emissions. It calls for more support for clean technology and for international action to cut emissions.

Government response

The Prime Minister, Tony Blair, said the report showed that the consequences of inaction were disastrous, and that the case for action was overwhelming. The Chancellor, Gordon Brown, who commissioned the review, has appointed the former American vice-president Al Gore as an adviser on the environment.

The government is expected to introduce new laws setting targets for cutting emissions.

Debate

Environmental groups have welcomed the report. Some economists have questioned its assumptions, particularly the low rate it uses to value future costs, which makes damage in the distant future count for more.

Business groups have broadly welcomed the call for a clear framework, but warned that Britain should not act alone.