The costs of climate change are going up, warns Alex Bowen, the senior economist on the team that produced the seminal Stern Review on the Economics of Climate Change. But a global green recovery could cut those costs.
 | Alex Bowen, senior economist, Stern Review"We can stabilize greenhouse gas concentrations in the atmosphere at a cost of around 2 to 3 percentage points of global GDP per annum" |
Published by the UK government in 2006, the Stern Review has been hugely influential in the climate change debate. Why was it so important?
The Stern Review brought climate change to a broader audience by analyzing the economic costs and benefits of halting climate change using measures people are familiar with.
We showed that the impact of uncontrolled climate change would be like losing up to 20 percent of world GDP now and forever in the future. We concluded that doing nothing is likely to be much more expensive than decarbonizing our economy.
Climate science has become more alarming since the Stern Review was published. Have you revised your original conclusions?
The Stern Review was based upon the science available up to 2005. Recent evidence about sea level rises, changes in water supply, and the social costs of climate change, has suggested the impacts of unrestrained climate change would be higher than 20 percent of GDP. We don’t have formal figures yet, but the revisions have been substantial.
Basically we don’t have the option of continued economic growth dependent on hydrocarbons. We need growth based on a low-carbon or zero-carbon economy.
Your latest work calls for a global green recovery. Are government stimulus packages promoting low-carbon growth?
Markets alone are not going to get us out of global recession. In “Towards a Global Green Recovery” we recommended a global fiscal stimulus of around 4 percent of world GDP in the main industrial countries, with about one fifth devoted to greening the economy.
So far the overall stimulus has been about 2 percent of world GDP and around 10 to 15 percent is being devoted to green spending. This is substantial but not as much as we would have liked.
 | Picture Gallery (click on the picture to start)See how the climate change balance sheet stacks up. Count the costs of climate change and the costs of protecting the climate. (Graphic: Asian Development Bank) |
The window of opportunity to use deficit finance to build a green economy is relatively small, perhaps the next two or three years, because lenders lose confidence in governments and because the global economy should start turning round next year.
After that, the green economy will have to be financed by other means, including green taxation and a strong carbon price.
What countries are making good progress and which ones are lagging behind?
At one end of the spectrum we have South Korea deciding to make their economy into a leading supplier of renewable technology and also taking the opportunity of a fiscal stimulus to improve energy and public transport infrastructure.
Efforts in the U.S. are also quite strong, particularly promoting energy efficiency and helping the renewable energy sector. In Europe the efforts have been patchier. Some European countries have room to do quite a lot more.
Given industrial countries historical responsibility and our greater per capita income we should commit to something like 80 percent emissions reductions by 2050 with an interim target of about 30 percent by 2030.
Should the industrialized world bow to China’s demand to transfer one percent of GDP to the developing world?
China itself is now responsible for a significant share of cumulative emissions so it has its own historical responsibility.
However, I think one percent is a reasonable ballpark figure but it should be focused on the poorest, most vulnerable countries that don’t have adaptive capacity, both to ensure technology transfer and help people hit by carbon pricing.
What are the costs of acting on climate change? Who will take the biggest hit?
We can stabilize greenhouse gas concentrations in the atmosphere at a cost of around 2 to 3 percentage points of global GDP per annum. Compared to the 20 percent of GDP or more that will be the costs of inaction, that is pretty small beer.
The impact on economic growth rates to about 2030 would probably be to reduce them on average by 0.1 percent per year, a very small number.
The energy sector is going to be the most transformed as the demand for hydrocarbons will grow less rapidly if we have strong action against climate change.
Cement, aluminium, and other non-ferrous metals will be heavily affected. Fishing has very high fuel costs, so if we have a strong carbon price that is going to hit the fishing industry.
Will these impacts be larger in industrialized or emerging economies?
We don’t know exactly where the cheapest emissions reductions will be. People assume there are cheap opportunities in emerging markets but, for example, China already has tougher pollution standards for cars than the U.S. so there is actually more opportunity in the U.S.
Rapidly growing emerging markets like India and China have enormous energy infrastructure requirements already and so the marginal costs required to green those investments may not be that substantial.
For developed economies with less rapid GDP growth and slower turnover of plant and machinery in the energy sector it is more of a challenge to introduce low-carbon alternatives.
The crucial thing is that power stations have carbon capture and storage. CCS is the only way to get around the fact that coal, oil, and gas currently provide much cheaper energy than most renewables.
More R&D is crucial. As people learn from experience, they can develop more efficient green technologies, leading to lower unit costs of energy. What economists call “induced technological change” can keep down the costs of decarbonizing the economy.
editor: James Tulloch
publishing date: June 09, 2009
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