The Stern
review on the economics of climate change
was conducted by Sir Nicholas Stern and
presented to the United Kingdom Government
in October 2006. It was the most comprehensive
review ever carried out on the economics
of climate change.
Stern came to the following conclusions:
-
There is still time
to avoid the worst impacts of climate
change, if we take strong action now.
The scientific evidence is now overwhelming—climate
change is a serious global threat, and
it demands an urgent global response.
This Review has assessed a wide range
of evidence on the impacts of climate
change and on the economic costs, and
has used a number of different techniques
to assess costs and risks. From all of
these perspectives, the evidence gathered
by the Review leads to a simple conclusion—the
benefits of strong and early action far
outweigh the economic costs of not acting.
-
Climate change could
have very serious impacts on growth and
development.
-
The costs of stabilising
the climate are significant but manageable;
delay would be dangerous and much more
costly.
-
Action on climate change
is required across all countries, and
it need not cap the aspirations for growth
of rich or poor countries.
-
A range of options
exists to cut emissions; strong, deliberate
policy action is required to motivate
their take-up.
-
Climate change demands
an international response, based on a
shared understanding of long-term goals
and agreement on frameworks for action.
Source:
Stern review on the economics of climate
change, short executive summary, http://www.hm-treasury.gov.uk/d/CLOSED_SHORT_executive_summary.pdf.
Among the review's conclusions was that
the cost of climate change—assuming
a business-as-usual approach—would
be considerable in terms of reduced global
gross domestic product (GDP) of between
five and 20 per cent each year, but
that the cost of avoiding such outcomes
(the abatement cost) is relatively small
at about one per cent of GDP annually. The
review's conclusions differ from those of
other models which concluded that the cost
in terms of GDP forgone was smaller and
the cost of abatement higher.
Analyses of the Stern review have concluded
that the main reason the review's conclusions
differ from those of other models is its
use of a low discount rate. The review’s
conclusion about the loss of GDP is based
on discount rates of around 1.4 per
cent per annum. Adding one percentage point
to the discount rate reduces the damage
cost estimates by more than half.
The Australian Greenhouse Office (now part
of the Department
of Climate Change) defined the discount
rate in its paper titled Economic
issues relevant to costing climate change
impacts, which also illustrates how
changing assumptions can yield quite different
results.
