Environmental Engineering Reference
In-Depth Information
For the energy sector, the cost of climate action delay could be huge.
In 2009 the International Energy Agency estimated that every year the
world delays shifting to policies that would keep emissions to 450ppm
of CO
2
e - which is now a highly ambitious target - adds $500bn to the
global estimated cost of $10.5 trillion for mitigating climate change. This
is because of the inertia in the world's energy-supply system. For instance,
each year of climate-change inaction is another year for new long-lived,
coal-fired, power plants to open around the world.
The Stern Review
The achievement of Nicholas Stern's influential report, “The Economics
of Climate Change”, was to show that we, as a world, need not bankrupt
ourselves in fighting climate change provided we take early action, but
that delay could be disastrous and costly. Specifically, Stern said that if
early action were taken “to avoid the worst impacts of climate change”,
the costs “can be limited to around one percent of global GDP each year”.
Stern later doubled his estimate of mitigation of climate change to two
percent of GDP, on the ground that climate change was accelerating and
that it was therefore necessary to hit the harder target of keeping CO
2
e
concentrations below 500ppm, not just within the 500-550ppm range.
If the world carried on its business as usual, however, “the overall costs
and risks of climate change will be the equivalent of losing at least five per-
cent of global GDP each year, now and forever”. Futhermore, “if a wider
range of risks and impacts is taken into account, the estimates of damage
could rise to twenty percent of GDP or more”.
This could be “on a scale similar to those [disruptions] associated with
the great wars and the economic depression of the first half of the twen-
tieth century”. Stern made headlines with his cost/benefit calculation that
spending 1-2 percent of world GDP in early climate action could head
off eventual climate mitigation and adaptation costs amounting to 5-20
percent of world GDP.
He was, however, widely criticized for using language and methodol-
ogy that made the economic equation more lop-sided in favour of early
climate action than seemed reasonable. He eschewed the traditional
convention in welfare economics, which values a future benefit less than
a present benefit, or which worries about a future cost less than a present
cost. Rather, Stern said that assessing impacts over a distant future neces-
sitates taking future generations more into account than ever before. “If a
future generation will be present, we suppose it has the same claim on our
