Economists describe human-induced climate change as an “externality” and the climate as a “public good”. Those who produce greenhouse gases as they generate electricity, power factories, flare off gases, cut down forests, fly in planes or drive cars do not have to pay for the damage caused by their emissions.

Analysis identifies three elements of policy required for an effective global response. The first is carbon pricing, through tax, trading or regulation, so that people pay the full social cost of their actions. The second is policy to support innovation and deployment of low carbon technologies. The third is removal of barriers to energy efficiency and measures to inform, educate and persuade.

Policies should tackle non-energy emissions as well, one third of the global total. Action to avoid further deforestation should be an urgent priority.

Clear policy signals, credible over the medium to long term, will help motivate the private investment which will drive down emissions. As understanding builds, people will increasingly demand a strong response from governments. Public discussion is itself a crucial ingredient of policy.

The Review finds that effective action to curb emissions could keep the cost of mitigation to around one per cent of global GDP every year. Crucially, on this basis, the world economy would continue to grow while the transition to a low carbon economy will open up exciting business opportunities, by raising demand for new products and financial services worth hundreds of billions a year.

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