Today sees the publishing of the vitally important Stern Review. The review investigates the economics of climate change, to understand more comprehensively the nature of the economic challenges and how they can be met, in the UK and globally.

In the report summary, Stern states that "Climate change is the greatest market failure the world has ever seen" and that "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. And it will be difficult or impossible to reverse those changes."

Here is a brief summary of some of the major findings:

Basics of the Stern Report: Costs

• Stern has undertaken a large scale cost-benefit analysis of investing (or not investing) in measures to reduce climate-change. This involves modelling the impact of:

1. Climate change on human life and the environment, as well as examining the costs of different technologies and strategies to reduce emissions.
2. The costs to the economy as a whole of transferring to a low-carbon economy.
3. Comparing different strategies to understand the potential costs of (in)action.

• On a human level, the impact be catastrophic: if left un-checked, climate change could create 200 Million refugees by 2050, through flood, famine and drought.
• Economically, the Review takes as an input the temperature rises predicted by the accepted climate models, and then calculates the effect on global GDP of such a temperature increase, and finds:

1. The "do-nothing" option (continuing on as we are, with current patterns of growth and consumption) will lead to a basic reduction in GDP of ~5%;
2. If we then allow for costs to human health and the environment, the cost rises to ~10%;
3. Allowing for updated climatic modelling, suggesting greater temperature rises, and potential non-linear climate change effects, the impact could be a colossal 20%;
4. If we act swiftly to stabilise greenhouse gas emissions, the spend required would amount to a reduction in GDP of only 1%.

• The economic case is clear: The cost of acting now would be around £200 Billion; The cost of not acting could be up to £3 Trillion. Immediate action is required.

Basics of the Stern Report: Actions

• Greenhouse gas levels in the atmosphere should be stabilised at 500-550 ppm (compared to today's level of 430, and to 280 in pre-industrial times).
  
• Collective Action will be required: The UK accounts for 2% of world CO2 emissions - if we were to instantly make all UK power stations pollution-free tomorrow, China alone is building so many coal-fired power stations that global-emissions would be back to the same level in one year.
• We need a speedier negotiation of a successor to the Kyoto protocol, i.e. before 2008, not 2012.
• Action to reduce deforestation would be comparatively cheap (£5B), yet effective (18% emissions reduction).
• We need to vastly increase spending on research into clean energy sources.
• We need to create a formal world market to price carbon emissions. This would need to cover all forms of business and transport, unlike the current EU ETS.li>
• Individuals and businesses alike will have to taxed to bring home the true social and environmental costs of pollution.
• In particular, world energy generation needs to be massively de-carbonised. As it is likely that fossil fuels could still be powering 50% of global power stations in 2050, it is essential that carbon capture & storage mechanisms are developed & implemented.
• The huge cost of investment will need to be primarily born by the developed world if Africa and developing nations are to have any chance to protect themselves - the %GDP cost for developing nations will be much higher, and Developed nations have a moral responsibility to help, given that they have created much of the emissions during their own growth over the past 150 years.
  

Stern then emphasises in his summary that the Review can be seen as being essentially optimistic:
"There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge. Strong, deliberate policy choices by governments are essential to motivate change. But the task is urgent. Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close".

Gordon Brown (who commissioned the review) released a statement commending the report and announcing a number of measures & planned items of legislation to begin to address the urgent call for action.

I will come back to this topic in a few days time once the international responses start to come in & when we have more detail on the UK Government's policy intentions: the international policy effort will be vitally important in the long term, if there is to be any meaningful action.