Stern Review on the Economics of Climate Change

On November 13, 2006, the Environmental and Energy Study Institute (EESI) held a Congressional briefing highlighting the findings of the UK 's just-released "Stern Review on the Economics of Climate Change" which addressed the costs of inaction on climate change versus the costs of action. The Review, under the aegis of the UK Prime Minister and Chancellor, was commissioned by the Chancellor in July 2005. It was carried out by Sir Nicholas Stern, Head of the Government Economic Service and former World Bank Chief Economist. The Stern Review's principal conclusion was that tackling climate change is a pro-growth strategy. The earlier effective action is taken, the less costly it will be. The overall costs of climate change if emissions are not curbed are equivalent to losing at least 5 percent of global GDP each year now and forever; worst case scenarios increase the loss to 20 percent ($7 trillion). The costs of taking action to stabilize greenhouse gas emissions can be limited to around 1 percent of global GDP per annum; In other words, $1 invested now can save $5 later.

• On current trends, average global temperatures will rise by 2-3°C within 50 years.
• If emissions continue to grow, the Earth could warm by several more degrees, with severe consequences that would hit poor countries most.
• Total cost to the global economy of business as usual from climate change is estimated to be $3.68 trillion.
• Stabilizing greenhouse gases in the atmosphere will cost about one per cent of annual global output by 2050. If no action is taken, climate change will reduce global consumption per head by between five and 20 percent.
• The global power sector will have to be at least 60 percent de-carbonized by 2050 to stabilize greenhouse gases.
• Markets for low-carbon energy products are likely to be worth at least $505 billion per year by 2050.

Sir David King, the UK's chief scientific advisor, said, "(Stern's) analysis, I think, will also surprise many people in terms of the relatively small cost of action." Sir David called the Stern review "the most detailed economic analysis that I think has yet been conducted." He said, "all of (Stern's) detailed modeling out to the year 2100 is going to indicate first of all that if we don't take global action we are going to see a massive downturn in global economies. If no action is taken we will be faced with the kind of downturn that has not been seen since the Great Depression and the two world wars....The investment process (in new energy sources) is going to act quite possibly in the opposite direction to an economic downturn."