Wednesday, November 22, 2006

The Stern Review on Climate Change

...can be found here with the "frequently asked questions" section found here. I am no expert in this area, however, what I see sounds quite sensible at first blush. The Review recommends that we reduce our CO2 emissions substantively in order to avoid continued warming of the planet. Failure to do so will lead to potentially catastrophic consequences by the end of the century. The cost in making the reductions will amount to about 1% of Gross Domestic Product by the middle of the century (+/-3%). A brief excerpt:

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".....Global GDP is currently around $35 trillion, so if the full 1% were applied to the current period, it would imply around $350 billion in costs. Global GDP is likely to be around $100 trillion by 2050, so this would mean annual costs in the order of $1 trillion by then.

These costs are not trivial in absolute terms, but they will not disrupt economic growth. The overall impact can be thought of as equivalent to a one-off increase in the average price level of 1%. Since it may be interpreted as a cost or price index we should see the 1% as applying to either consumption or income.

The costs of inaction would be likely to be much more significant in terms of damage to the world economy......

....The cost may be unevenly distributed amongst countries. For equity reasons, rich countries may at least initially need to take on more of the costs. For illustration, if the costs of mitigation are 1% of global GDP, then if the rich countries agreed to pay 20% more in the initial decades (1.2% of GDP), then this would allow poorer countries – accounting for 80% of the world’s population – to pay only 0.2% of GDP.

If some countries take action that is much more significant than others over long periods of time, this may lead to impacts on the competitiveness of some firms or sectors, particularly in energy-intensive industries. It is important to use quantitative analysis to assess the size of these impacts, and to find ways to reduce the problems. If all countries act in a broadly similar way, there will be no impact on competitiveness or on firms’ decisions to invest in particular locations. For some industries, a global sectoral agreement in advance of a broader international agreement could offer opportunities to co-ordinate efficient and effective action.

Taking no action to reduce emissions will also penalise some sectors more than others – for example, as the climate changes the spatial distribution of tourism and agriculture....."
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What I found interesting about this is that the cost to us---1% of global GDP---is similar to the cost that Thomas Pogge claims wealthy countries should pay to end severe poverty (1% of GDP from affluent states). Thus, for less than 2% of global GDP we might eradicate global poverty and avoid global warming. Such a sum of money would be far from insignificant and difficult to manage and allocate effectively, but not beyond all possible hope. The solution to both problems may be easier than many may think...at least in terms of costs.

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