stern presentation nairobi

8/2/2019 Stern Presentation Nairobi

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What is the economics of climate changeand how does it depend on the science?

Analytic foundations

Climate change is an externality with a difference:

• Global

• Long-term

• Uncertain• Potentially large and irreversible

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Projected impacts of climate change

1°C 2°C 5°C4°C3°C

Sea level rise threatens major cities

Falling crop yields in many areas, particularly developing regions

FoodFood

WaterWater

EcosystemsEcosystems

Risk of Abrupt andRisk of Abrupt and

Major IrreversibleMajor Irreversible

ChangesChanges

Global temperature change (relative to pre-industrial)0°C

Falling yields in many

developed regions

Rising number of species face extinction

Increasing risk of dangerous feedbacks and abrupt, large-scale shifts in the climate system

Significant decreases in water availability in many areas, including Mediterranean and Southern Africa

Small mountain glaciers disappear – water supplies threatened in several areas

Extensive Damage to Coral Reefs

ExtremeExtremeWeatherWeather

EventsEvents

Rising intensity of storms, forest fires, droughts, flooding and heat waves

Possible rising yields in

some high latitude regions



Stabilisation and commitment to

warming

1°C 2°C 5°C4°C3°C

400 ppm CO2e

450 ppm CO2e

550 ppm CO2e

650ppm CO2e

750ppm CO2e

5% 95%

Eventual temperature change (relative to pre-industrial)

0°C

4



Aggregate estimates of impacts

• Essential to take accountof risk and uncertainty

• Models do not provideprecise forecasts

• Models embody arelationship betweentemperature and

economic damage• Assumptions on

discounting and riskaversion affect the results

14%11%Broadimpacts

7%5%Marketimpacts

High

Climate

Base

climate

Adjusting for income

inequality raises estimates

by at least one quarter



Delaying mitigation is dangerous and

costly

Stabilising below 450ppm CO2e would require emissions to peak by2010 with 6-10% p.a. decline thereafter.

If emissions peak in 2020, we can stabilise below 550ppm CO2e if weachieve annual declines of 1 – 2.5% afterwards.

A 10 year delay almost doubles the annual rate of decline required.

0

10

20

30

40

50

60

70

80

90

100

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

G l o b a l E m i s s i o n s ( G t C O 2 e

450ppm CO2e

500ppm CO2e (falling to450ppm CO2e in 2150)

550ppm CO2e

Business as Usual

50GtCO2e

70GtCO2e

65GtCO2e

6



Given the costs of impacts, taking

urgent action is good economics

Expected cost of cutting emissions consistent with a 550ppm

CO2e stabilisation trajectory averages 1% of GDP per year.•Resource cost: 1% of GDP in 2050, in range –1% to +3.5%.

•Macroeconomic models: 1% of GDP in 2050, in range +/- 3%.

Costs will not be evenly distributed:•Competitiveness impacts can be reduced by acting together.

There will be opportunities and co-benefits:

•New markets will be created: worth over $500bn a year by 2050

•Climate policy consistent with energy access, energy security, air quality.

Strong mitigation is fully consistent with the aspirations forgrowth and development in poor and rich countries.

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Economic principles forinternational action

Effective action requires:

– Long-term quantity goals to limit risk; short-term flexibility to limit costs

– A broadly comparable global price for carbon

– Cooperation to bring forward technology

– Regulation, standards and persuasion

– Equitable distribution of effort – Transparency and mutual understanding of

actions and policies

8



Global carbon markets can be expanded

• Increasing the size of global carbon markets – byexpanding or linking schemes globally – and ambitiousglobal emissions reductions goals can drive large flowsacross countries and promote action in developing

countries

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

European Union(25)

United States ofAmerica

China, India,Mexico, Brazil,South Africa

(+5)

G7 EU25, Jap, Aus,Can, USA

OECD Top 20 Globalemitters

M i l l i o n t o n n e s C O 2 e m

i s s i o n s ,

2 0 0 2

Total emissions from fossil fuels

Emissions from power and industrial sectors (estimated)



Technology needs more than a carbon price

Carbon price alone not enough to bring forward thetechnologies we need

International co-operation on technology can take manyforms:

–Global public R&D funding should double, to around $20 bn

–Co-ordination and increase of deployment incentives

–Product standards eg for appliances, vehicles 10



Avoiding deforestation

• Curbing deforestation is

highly cost-effective• Forest management

should be shaped and ledby nation where the

forest stands• Large-scale pilot

schemes could helpexplore alternative

approaches to provideeffective internationalsupport



Adaptation• Development increases

resilience

• International action alsohas a key role in supportingglobal public goods foradaptation

– Disaster response – Crop varieties and technology

– Forecasting climate and weather

• Adaptation will put strong

pressure on developingcountry budgets and ODA:essential to meet 2010 and2015 commitments

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Conclusions

Unless emissions are curbed, climate change will bringhigh costs for human development, economies and the

environment – Concentrations of 550ppm CO2e and above are associated with high risks

of serious economic impacts

– Concentrations of 450ppm CO2e and below will be very difficult to achievegiven where we are now and given current and foreseeable technology

Limiting concentrations within this range is possible. Thecosts are modest relative to the costs of inaction, and

consistent with growth.

Decisive and strong international action is urgent: delaymeans greater risks and higher costs.

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