A climate for investment

The Stern Review of the Economics of Climate Change, which reported yesterday to the British Prime Minister and Chancellor, accepts the overwhelming scientific evidence that climate change is a man-made, global threat to the sustainability of life on earth. But our research indicates that it is still possible to avoid the worst risks and impacts of climate change at an affordable cost, if well-designed and co-ordinated action at a national and global level is taken forward as a matter of urgency.

The annual flow of carbon dioxide and other greenhouse gases that warm Earth’s atmosphere has accelerated ever since coal, then Oil and gas too, began to fuel the industrial revolution which has brought better lives to so many. The billions of tons of carbon dioxide and other greenhouse gases still accumulating in the earth’s fragile, protective atmosphere have already raised concentrations to around 430ppm (parts per million) of carbon dioxide equivalent (CO2e), compared to 280ppm before the industrial revolution.

Human activities are pouring 45 billion tonnes of greenhouse gases (in CO2e) into the atmosphere a year, and rising. Earth’s intricate eco-systems currently absorb around half, but the rest is retained in the atmosphere, pushing the accumulated stock of gases higher every year.

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...