The Stern Review on the economics of climate change is out today and all the papers are carrying the story. The full report runs to 700 pages so forgive for not yet reading the entire thing (some key points). However a few things jump out:
- Since the Stern Review is a UK exercise, much of the talk has been about unilateral measures, for example, a shift to green taxation. However taking the case of cheap flights, one of the fastest growing sources of emissions, it may not be feasible to introduce an extra tax because of EU and international agreements on aviation. Even if an extra tax on aviation were possible, many people (e.g. Dieter Helm, an energy economist at Oxford) argue quite convincingly that such taxes would have very little effect. Oil prices have already gone from $10 to $70 per barrel in recent years with no noticeable impact on demand. How would an extra £10 tax on a ticket make a difference? Just how much would you have to tax cheap flights to get people to stop? Some would also argue that taxing aviation is discriminatory against the poor – there is likely some truth to that but recent research finds that in fact wealthy people make up the majority of cheap flight passengers.
- While there is a strong moral argument for action at home, the Stern Review makes it clear that international action is required. The figure that keeps getting quoted is that if the UK shut down all of its power plants, China’s growth would swamp those savings in just over a year. The report therefore calls for an international cap and trade system. It makes sense from a scientific point of view (the goal is to reduce carbon emissions; taxes are only a proxy for emissions and if people can afford to pay the tax, emissions don’t fall) but it could be very difficult to implement. How on earth do you get all the nations on earth to agree to a common carbon market? Kyoto was hard enough. However without such an agreement, it could be extremely difficult to win any domestic arguments about emissions reductions – just read what these selfish people
* have to say about going it alone.An interesting angle on this whole unilateral/multilateral thing comes from the New Economics Foundation though. As noted in yesterday’s Observer, the UK may only be responsible for 2% of global emissions but UK firms are responsible for 15%. In the same way that state regulation in California acts as a driver to automotive innovation across the US, perhaps UK corporate legislation could encourage UK firms to reduce emissions and innovate, arguably developing competitive advantage for a low-carbon world.
- Finally, Tony Blair said that this is the most important report he’s received in his time in office. Others also imply that we can now get on with solving climate change because an economist has put a price tag on things. I know money makes the world go round and everything but honestly, if hundreds of scientists have been saying for at least 5 years (10+ depending on how certain you want to be) that we’re in big big trouble, why not listen? It’s not even new in the finance world – reinsurance companies have been concerned about climate change since the late 1990s, seeking to limit their exposure to the increased risk of hurricanes, floods and so on.
Clearly the scientific approach has only brought policy makers so far. While the response to the Stern Review is unlikely to be accepted everywhere with open arms, it does mark a change in the debate. But given warnings in Stern and elsewhere that the world has less than 10 years to act, the impact of this report should be judged in month, not years. For example, negotiations on the next round of Kyoto are due to began in Nairobi next month in hopes of getting an agreement by 2010-11. Stern however is calling for action by next year and that means getting the US administration on board now. Perhaps that is the acid test for the report; otherwise it will join an increasing large pile of careful research that has been ignored to our peril.
PS – The iCount climate protest is this coming Saturday in Trafalgar Square. If you can, go along; if not, sign up to one of their pledges.
