Oct 30, 2006 (From the CalCars-News archive)
The United Kingdom's Treasurey Department has released its much-anticipated "Stern Review Report" by the former Chief Economist of the World Bank on the potential costs of climate change if we do not act -- and what it would cost to reduce the consequences. Bottom line: spending 1% of global GDP could avert costs that could range from 5-20% of GDP. The report is getting lots of attention--this morning it's the #1 item at Google News, with over 700 outlets picking up the story:
http://news.google.com/?ncl=http://news.bbc.co.uk /2/hi/in_depth/6099272.stm&hl=n
The report is of course of broad interest. Of particular significance to readers of CalCars-News are two paragraphs on page 356 (part 4, PDF page 49 of 95):
Markets alone, however, may struggle to deliver more radical changes to transport technologies such as plug-in hybrids or other electrical vehicles. Alternative fuels (such as biofuel blends beyond 5-10%, electricity or hydrogen) may require new networks, the cost of which is unlikely to be met without incentives provided by public policy. The environmental benefit of alternative transport fuels will depend on how they are produced. For example, the benefit of electric and hydrogen cars is limited if the electricity and hydrogen is produced from a high emission sources. Obstacles to the commercial deployment of hydrogen cell vehicles, such as the cost of hydrogen vehicles and low-carbon hydrogen production, and the requirement to develop hydrogen storage further, ensure it is unlikely that such vehicles will be widely available commercially for at least another 15 to 20 years.
Notably, on the transportation sector, this report uses a far lower figure than we've seen, assigning only 14% of global CO2 emissions to transportation.
ONE-TWO PUNCH: For those who would prefer more "impartial" reports than one commissioned by a government, this report follows by two weeks one by Price-Waterhouse-Coopers (PwC) UK that suggests "the level of GDP might be reduced by no more than around 2-3% in 2050 if this strategy was followed, equivalent to sacrificing only around a year of economic growth for the sake of reducing carbon emissions in 2050 by around 60% compared to our baseline scenario". We've included a press release and link to that prior report from PwC at the end of this posting.
You can find links to download all the sections of the 576-page Stern Report at http://www.hm-treasury.gov.uk/Independent_Reviews/stern_review_economics_climate_change/sternreview_index.cfm
Here's the very good summary posted at Green Car Congress: http://www.greencarcongress.com/2006/10/stern_review_la.html: Stern Review Lays Out Economic Argument for Urgent Action on Climate Change 30 October 2006
HM Treasury (UK) today published the much-anticipated Stern Review Report on the Economics of Climate Change, the most comprehensive review yet carried out on the economics of climate change.
The Review estimates that while the cost of stabilization could be 1% of global GDP by 2050, the longer-term costs of a narrow range of effects of unabated climate change would be at least 5% of global GDP. Considering more recent scientific evidence (for example, of the risks that greenhouse gases will be released naturally as the permafrost melts), the economic effects on human life and the environment, and approaches to modelling that ensure the impacts that affect poor people are weighted appropriately, the Review estimates that the dangers could be equivalent to 20% of global GDP or more.
In other words, the benefits of strong and early action far outweigh the economic costs of not acting.
The Review, which reports to the Prime Minister and Chancellor of the Exchequer, was commissioned by the Chancellor in July last year and was carried out by Sir Nicholas Stern, Head of the Government Economic Service and former World Bank Chief Economist.
The conclusion of the Review is essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge. Strong, deliberate policy choices by governments are essential to motivate change.
But the task is urgent. Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close. -Sir Nicholas Stern
Noting that emissions have been, and continue to be, driven by economic growth, the Review concludes that stabilization of greenhouse-gas concentrations in the atmosphere is feasible and consistent with continued growth.
...central estimate is that stabilisation of greenhouse gases at levels of 500-550ppm CO2e will cost, on average, around 1% of annual global GDP by 2050. This is significant, but is fully consistent with continued growth and development, in contrast with unabated climate change, which will eventually pose significant threats to growth.
Resource cost estimates suggest that an upper bound for the expected annual cost of emissions reductions consistent with a trajectory leading to stabilisation at 550ppm CO2e is likely to be around 1% of GDP by 2050.
...Stabilisation at 450ppm CO2e is already almost out of reach, given that we are likely to reach this level within ten years and that there are real difficulties of making the sharp reductions required with current and foreseeable technologies. Costs rise significantly as mitigation efforts become more ambitious or sudden. Efforts to reduce emissions rapidly are likely to be very costly.
An important corollary is that there is a high price to delay. Delay in taking action on climate change would make it necessary to accept both more climate change and, eventually, higher mitigation costs. Weak action in the next 10-20 years would put stabilisation even at 550ppm CO2e beyond reach-and this level is already associated with significant risks. -The Review Report
The first half of the Review focuses on the impacts and risks arising from uncontrolled climate change, and on the costs and opportunities associated with action to tackle it. A sound understanding of the economics of risk is critical. The Review emphasizes that economic models over timescales of centuries do not offer precise forecasts, but are an important way to illustrate the scale of possible effects.
The Review finds that while all countries will be affected by climate change, the poorest countries will suffer earliest and most. Unabated climate change risks raising average temperatures by more than 5°C from pre-industrial levels. Such changes would transform the physical geography of our planet, as well as the human geography- how and where the planet's population lives.
The Review calculates that if no action is taken to control emissions, each tonne of CO2 emitted now is causing damage worth at least $85-a cost not considered when investors and consumers make decisions about how to spend their money. Emissions trading schemes have demonstrated that there are many opportunities to cut emissions for less than $25 a tonne. In other words, according to the Review, reducing emissions will make us better off. According to one measure, the benefits over time of actions to shift the world onto a low-carbon path could be in the order of $2.5 trillion each year.
The shift to a low-carbon economy will also bring huge opportunities. Markets for low-carbon technologies will be worth at least $500 billion by 2050 if the world acts on the scale required.
Tackling climate change is the pro-growth strategy; ignoring it will ultimately undermine economic growth.
The Review looks at what this analysis means for the level of ambition of global action. It concludes that the levels of greenhouse gases in the atmosphere should be limited to somewhere within the range 450 - 550ppm CO2e (CO2 equivalent). Anything higher would substantially increase risks of very harmful impacts but would only reduce the expected costs of mitigation by comparatively little. Anything lower would impose very high adjustment costs in the near term and might not even be feasible, not least because of past delays in taking strong action.
The second half of the Review examines the national and international policy challenges of moving to a low-carbon global economy.
Calling climate change "the greatest market failure the world has seen," the Review identifies three elements of policy are required for an effective response:
1. Carbon pricing through taxation, emissions trading or regulation, to face people with the full social costs of their actions. The aim should be to build a common global carbon price across countries and sectors. 2. Technology policy to drive the development and deployment at scale of a range of low-carbon and high-efficiency products. 3. Removing barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change. Fostering a shared understanding of the nature of climate change, and its consequences, is critical in shaping behaviour, as well as in underpinning both national and international action, the Review asserts.
Key elements of future international frameworks should include:
- Emissions trading. Expanding and linking the growing number of emissions trading schemes around the world is a powerful way to promote cost-effective reductions in emissions and to bring forward action in developing countries: strong targets in rich countries could drive flows amounting to tens of billions of dollars each year to support the transition to low-carbon development paths.
- Technology co-operation. Informal co-ordination as well as formal agreements can boost the effectiveness of investments in innovation around the world. Globally, support for energy R&D should at least double, and support for the deployment of new low-carbon technologies should increase up to five-fold. International cooperation on product standards is a powerful way to boost energy efficiency.
- Action to reduce deforestation. The loss of natural forests around the world contributes more to global emissions each year than the transport sector. Curbing deforestation is a highly cost-effective way to reduce emissions; large-scale international pilot programs to explore the best ways to do this could get underway very quickly.
- Adaptation. The poorest countries are most vulnerable to climate change. It is essential that climate change be fully integrated into development policy, and that rich countries honour their pledges to increase support through overseas development assistance. International funding should also support improved regional information on climate change impacts, and research into new crop varieties that will be more resilient to drought and flood.
Transportation. The Review identifies transportation as one of the two global sectors (along with power generation) requiring special attention. Transportation currently represents 14% of global emissions, and is the fastest growing source of emissions because of continued growth of car transport and rapid expansion of air transport.
The current incremental improvements to existing technologies have been "more than offset" by the growth in demand and shift towards more powerful and heavier vehicles.
The improvements in the internal combustion engine from a century of learning by doing, the efficiency of fossil fuel as an energy source and the existence of a petrol distribution network lead to some "lock-in" to existing technologies. Behavioural inertia compounds this "lock-in" as consumers are also accustomed to existing technologies.
The Review suggests that although some further innovative activity could be delivered through market forces,
Markets alone, however, may struggle to deliver more radical changes to transport technologies such as plug-in hybrids or other electrical vehicles. Alternative fuels (such as biofuel blends beyond 5-10%, electricity or hydrogen) may require new networks, the cost of which is unlikely to be met without incentives provided by public policy.
The environmental benefit of alternative transport fuels will depend on how they are produced. For example, the benefit of electric and hydrogen cars is limited if the electricity and hydrogen is produced from a high emission sources. Obstacles to the commercial deployment of hydrogen cell vehicles, such as the cost of hydrogen vehicles and low-carbon hydrogen production, and the requirement to develop hydrogen storage further, ensure it is unlikely that such vehicles will be widely available commercially for at least another 15 to 20 years.
Resources: •Stern Review on the economics of climate change (website with full report)
PRICE WATERHOUSE REPORT OCT 12, 2006
http://www.pwc.com/extweb/pwcpublications.nsf/docid/dfb54c8aad6742db852571f5006dd532 plus graphics -- and URL to download the 680kb file
The World in 2050 - Impact of global growth on carbon emissions and climate change policy
The rapid economic growth of emerging countries such as China and India - together with continued more moderate growth in today's advanced economies - could have serious long-term consequences for global energy consumption and carbon emissions.
The projections demonstrate that if countries sit back and adopt a "business as usual" approach, the result could be a more than doubling of global carbon emissions by 2050. Based on current scientific thinking, this could have potentially serious longer term implications in terms of global warming and related climate change.
On the other hand a scenario such as the "Green Growth Plus" strategy outlined in the report could allow for continued healthy growth whilst controlling carbon emissions.
These are just some of the points highlighted in a new PricewaterhouseCoopers (PwC) report entitled The World in 2050: Implications of global growth for carbon emissions and climate change policy.
The report considers six possible scenarios but focuses most attention on two key possibilities:
- A baseline scenario in which energy efficiency improves in line with trends of the past 25 years, with no change in fuel mix by country; this 'business as usual' scenario acts as a benchmark against which to assess the need for change, rather than as a forecast of the most likely outcome; and
- A scenario called Green Growth + CCS, which incorporates possible emission reductions due to a greener fuel mix, annual energy efficiency gains over and above the historic trend, and widespread use of carbon capture and storage (CCS) technologies. Of the scenarios considered in the report, only this 'Green Growth Plus' strategy stabilises atmospheric CO2 concentrations by 2050 at what the current scientific consensus suggests would be broadly acceptable levels.
The G7 economies - the US, Japan, Germany, UK, France, Italy and Canada - may need to take the lead in reducing their carbon emissions, given that emissions from the faster-growing emerging economies will almost certainly continue to rise over the next few decades.
This latest PwC report follows on from one published in March 2006 which highlighted the rapid growth potential of the "E7" emerging economies - China, India, Brazil, Russia, Mexico, Indonesia and Turkey - leading up to 2050. Take a look at this report, entitled The World in 2050: How big will the major emerging market economies get and how can the OECD compete?, for more details of the methodology used to project GDP growth in the new report.
The author of both reports is John Hawksworth, head of macroeconomics at PricewaterhouseCoopers' UK firm. He says: "As they increase in relative size to overtake the current G7 countries, the emerging 'E7' economies will increasingly provide the motor for global growth and could account for almost half of global carbon emissions by 2050 according to our model. But this begs the question: Can the world sustain such rapid growth without serious adverse effects on its climate? Our new report provides one possible answer to how this might be achieved".
The chart below shows how it might be possible to get from the baseline scenario to the preferred Green Growth + CCS scenario for global carbon emissions in three steps.
The report also indicates how carbon emissions might need to evolve by country to achieve the Green Growth + CCS scenario, as summarised in the charts below. We can see that the G7 economies will need to reduce their current level of emissions by around half by 2050 to achieve this scenario, whereas the E7 economies would still be able to increase their emissions by around 30% from current levels.
These charts also show the growing weight of the E7 emerging economies (particularly China and India) in global carbon emissions relative to the current G7 advanced economies. According to the model, China is set to overtake the US as the leading carbon emitter by 2010, while total E7 emissions would be more than double total G7 emissions by 2050. Together the 'Big 3' economies (China, US and India) are projected to account for just over half of global emissions by 2050 in both our Baseline and Green Growth + CCS scenarios (though the absolute levels of emissions are much lower in the latter case), up from around 45% today. The EU's share of global emissions is set to decline from around 15% now to just under 9% by 2050.
John Hawksworth concludes: "Our analysis suggests that there are technologically feasible and relatively low-cost options for controlling carbon emissions to the atmosphere. Estimates suggest that the level of GDP might be reduced by no more than around 2-3% in 2050 if this strategy was followed, equivalent to sacrificing only around a year of economic growth for the sake of reducing carbon emissions in 2050 by around 60% compared to our baseline scenario".
"But if this is to be achieved, it will take further concerted action by governments, businesses and individuals over a broad range of measures to boost energy efficiency, adopt a greener fuel mix, and introduce carbon capture and storage technologies in power plants and other major industrial facilities".
Contacts: John Hawksworth Head of Macroeconomics London Tel:+[44] (20) 7213 1650 Mike Davies London Tel:+[44] (20) 7804 2378
