Economic Impact
The Stern Review on the Economics of Climate Change, the most comprehensive review on this topic ever carried out, was published on October 30 2006 and led by Lord Stern, the then Head of the Government Economic Service and former World Bank Chief Economist.
The review assessed a wide range of evidence on the impacts of climate change and the economic costs - it made a simple conclusion: “the benefits of strong and early action far outweigh the economic costs of not acting”.
The review demanded an international response based on a shared understanding of long-term goals and agreement on frameworks for action.
However, Lord Stern has stated: “Looking back, the Stern review underestimated the risks and underestimated the damage from inaction." Stern said he feared that politicians had not grasped the seriousness of the crisis. "Do the politicians understand just how difficult it could be? Just how devastating four, five, six degrees centigrade would be? I think not yet.” (The Guardian, 2009).
The likelihood of ‘dangerous and irreversible’ climate change increases considerably if we go over 2ºC (Avoiding Dangerous Climate Change, 2005). The UK has a legal commitment to cut emissions by 80 per by 2050, an appropriate contribution to keep risks of dangerous climate change at acceptable levels (Committee on Climate Change). This 80 per cent target was chosen because it was felt, at the time, to represent the appropriate UK contribution to staying below 2ºC.
However, absolute cuts by 2050 will not be enough. Carbon dioxide stays in the atmosphere for approximately 100 years; it is more important to think about the accumulation of carbon in the atmosphere over time, which needs to be reduced quickly and then stabilised. So there is increasing pressure for interim targets and in the UK, on the recommendation of the Committee on Climate Change, the nation now has a target of a 34-42 per cent reduction from 1990 levels by 2020. (Committee on Climate Change).
The result will be a transition to a low carbon economy. Businesses need to accept and promote this shift. Climate change will affect the economy at least as much as the ‘credit crunch’, if not more. It should be seen as an opportunity for new business as well as a risk to current models. This could be though a renewed focus on efficiency or a fundamental shift in business models towards a service economy, for example.
"This recession will be big. But climate change will be bigger… climate change represents the greatest and widest-ranging market failure ever seen” - Sir Nicholas Stern
“The science says we need to cut greenhouse gas emissions by 80 per cent to avoid the most catastrophic and irreversible effects of climate change. We’ll have 20 per cent of current emissions with an economy that we want to be three times bigger. It’s not just a change, it’s a transformation.” – Ed Miliband, DECC