The Stern Report – Key Elements

The focus on Gross Domestic Product (GDP), the aggregation of demand C+I+G+X-M (Consumption plus Investment plus Government spending plus Exports less Imports) is what is focussed on to give an indication of wealth. Countries receive Moody’s credit ratings which enable them to raise finance. Finance is the lifeblood of the capitalist system. So this index is what drives production and consumption. It is the core issue. So let’s look at the key elements of the Stern Report as a refresher. We actually need a radically different way of seeing wealth. So enjoy.

Introduction

In 2005 the UK government commissioned former World Bank Chief Economist, Sir Nicholas Stern, to investigate the economic impacts and potential policy responses to climate change.

The resulting report focused primarily on the impacts of climate change on growth and development, the economics of stabilisation, the policy responses for both climate change adaptation and mitigation and the potential for international collective action. The Stern Review, as it has come to be known, has become the single most influential body of economic policy work in the field of climate change, not just within the UK but also globally. The work provided the first rigorous economic analysis of the cost to the global economy of action versus inaction on climate change.

In 2008, as Professor of Economics and Government at the London School of Economics, Lord Stern went on to develop the framework for a global treaty to address climate change. The findings of both these reviews, The Stern Review (2005) and The Global Deal on Climate Change.

The Stern Review (2005) – key elements

Impact of climate change on growth and development

The costs of climate change were estimated as equivalent to 5% of global GDP every year for eternity. If a wider range of risks and impacts (eg environment and health) were accounted for, this would rise to more than 20%. The impacts would not, however, be proportional to wealth – the poor would suffer most.

Economics of stabilisation

There is a strong need to decouple the link between greenhouse gas emission growth and GDP growth. To do this, Stern advised that emissions must peak in the next 10–20 years and fall by 1–3% annually thereafter. So the emissions intensity of GDP would need to be around a quarter of today’s level by 2050. The cost of doing this falls between –2 and 5% of GDP – an average of about 1% of GDP annually.

Policy responses for mitigation

Because greenhouse emissions are currently an externality for producers, there need to be incentives to drive low-carbon choices. Stern advocates:

• a global carbon price, through emissions trading and carbon taxes, as well as measures to ensure that dangerous investment decisions are not made during the cross-over period

• close collaboration between government and industry to drive technology and R&D; global public energy R&D should double to about US$20 billion a year for the development of a diverse portfolio of technologies

• widespread encouragement of behavioural change, through education, labelling, efficiency standards and direct incentives.

Such initiatives would foster action on:

• reducing demand for high-emission goods and services
• switching to low-carbon technologies for power, heat and transport, and
• ensuring widespread uptake of energy-efficiency measures.

Stern estimates that the excess of benefits over costs associated with stabilising CO2 at a level of 500–550ppm would yield a net present value of US$2.5 trillion.

Policy responses for adaptation

Climate change is real, so in addition to stopping further rises in CO2 emissions, society must also adapt to the impacts that will occur. Stern identifies four key policies for governments:

• provision of high-quality climate information services (for better prediction of extreme weather)
• introduction of building, land use and infrastructure regulations that take climate change predictions into account
• long-term planning for climate- sensitive public goods
• creation of a financial safety net for the vulnerable.

International collective action

Many actions require international cooperation. Stern advocates:

• agreement on a global emissions reduction framework
• using the EU’s emissions trading scheme as the hub of a global carbon market, linking prices for carbon and reporting frameworks
• scaling up capital flows to developing countries for adaptation to climate change
• cooperation on curbing deforestation
• cooperation on driving technological innovation and diffusion.

(source: http://www.accaglobal.com/pubs/general/activities/library/sustainability/cc_pubs/tech_tp_cjb_stern.pdf)