Tuesday, November 14, 2006

More on the Stern Review

This comment piece by John Cassidy from the New Yorker's Talk of the Town section is one of the best summaries I've found on the recently released Stern Review on the economic impact of global warming. It not only shows that we have some serious economic choices to make in the near term, but also the seemingly non-economic trade-offs that we would suffer (for example, the death of Australia's Great Barrier Reef) that turn into economic disasters.
Unless the nations of the world come together to control emissions, the report said, we face the risk of “major disruptions to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century.”

The report’s author, Sir Nicholas Stern, the head of Britain’s Government Economic Service, is hardly a scaremonger. He combines a strong academic background—Cambridge, Oxford, and the London School of Economics—with practical experience. After the fall of Communism in Eastern Europe, he spent six years at the European Bank for Reconstruction and Development. From 2000 through 2003, he was the World Bank’s Chief Economist. Last year, Gordon Brown, the Chancellor of the Exchequer, asked him to examine the economic consequences of climate change and make recommendations for what governments should do about it. The report Stern delivered, at six hundred pages, sets a new benchmark for policy discussion.

The Bush Administration and its ideological and corporate allies have downplayed the scientific evidence for global warming while complaining that taking on climate change in a major way would place too great a burden on the economy. Stern, who came to the subject fresh, dismisses these views. He says, “Climate change presents very serious global risks, and it demands an urgent global response.”

At the launch presentation of his report, Stern pointed out that global warming is a textbook case of an “externality,” in which the prices people pay for gasoline, electric power, and other energy products don’t reflect their true costs, among them the impact of greenhouse gases. “Our emissions affect the lives of others,” he explained. “When people do not pay for the consequences of their actions, we have market failure. This is the greatest market failure the world has seen.”

There are a number of ways to deal with market failures, including taxes, regulation, and compulsory voucher schemes that force corporations and other organizations to pay for the negative side effects of their activities, such as environmental pollution. Bringing carbon emissions under control is such a mammoth task, Stern says, that all these remedies will be needed. By 2050, for example, at least sixty per cent of global power capacity will have to come from non-carbon sources, such as wind farms, solar cells, and nuclear reactors; at the moment, the proportion is less than twenty-five per cent. “Mitigation—taking strong action to reduce emissions—must be viewed as an investment,” the report says. “If these investments are made wisely, the costs will be manageable, and there will be a wide range of opportunities for growth and development along the way.”

The figures that Stern and his team of researchers provide should be regarded as best guesses rather than precise forecasts, but they are instructive nonetheless. Stabilizing greenhouse-gas emissions at somewhat above current levels by 2050 would cost about one per cent of the annual global gross domestic product, or about half a trillion dollars. That’s a lot of money, but it’s cheap compared with the costs we will eventually face if we do nothing—between five per cent and twenty per cent of annual world G.D.P., or as much as nine trillion dollars a year. (The G.D.P. of the United States last year was twelve and a half trillion dollars.)

These estimates are based on adding up things like a crash in the Australian tourism industry, resulting from the devastation of the Great Barrier Reef; higher property-insurance premiums in Florida, because of coastal surges; lower crop yields for Italian farmers, caused by water shortages in the Mediterranean region; and a precipitous decline in the already poverty-stricken economy of Bangladesh, owing to the fact that parts of the country may be under water.

Some cold countries, such as Russia and Sweden, may benefit economically as their climate warms up, but the overall impact is sharply negative, especially when monetary values are assigned to consequences like forced migrations, the destruction of the rain forests, and the spread of vector-borne diseases like malaria and dengue fever. (Previous studies understated the economic impact of global warming because they didn’t account for such collateral effects.) In general, poor countries, especially those in tropical areas, will be affected most by global warming, and their economic sufferings will likely trigger instability. In West Africa, for example, seventeen countries share many of the same threatened water sources, and, the report says, “the region faces a serious risk of water-related conflict.”

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