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U.K.'s Stern eyes economic and policy responses to climate change

As difficult as adapting to climate change will be for rich countries, developing countries will be much more deeply affected, British government adviser Nicholas Stern told an MIT Energy Initiative (MITEI) colloquium Monday, Nov. 19.

Although climate change poses severe risks to the economies and societies of the planet, the risk can be radically reduced with strong and timely action on a global scale, Stern said. A global deal involving India, China and other developing countries will be key, he said, but pushing them too far too fast may backfire.

Policy instruments such as price hikes, tax increases and cap-and-trade schemes, in which companies buy and sell permits to emit carbon, will need to be a key part of an emission-limiting global deal, he said. But fixing the carbon price alone won't work, Stern said, and technology will have to play an important role.

Stern served as adviser to the British government on the economics of climate change and development, and reported to the prime minister from 2003 to 2007. He headed the Stern Review on the Economics of Climate Change.

From an economist's point of view, he said, climate change represents a market failure: one person's action affects the livelihood of others, but the original actor bears none of the costs. Climate change is "the greatest example of market failure the world has ever seen because of the magnitude of the consequences and the fact that we're all involved," Stern said.

Stern said his economic and policy analysis is dictated by the scientific premise that human emissions of greenhouse gases are generating climate change that, if unaddressed, will lead to an increase in global temperatures that would cause massive migrations of people away from the equator, plus storms, floods and droughts. In all, those changes would "make much of the world hard to live in," he said.

The carbon dioxide in the earth's atmosphere is measured in parts per million (ppm). Current concentration levels average approximately 430 ppm and are steadily rising, Stern said. At 800 ppm, scientists predict a 50-50 chance of an annual temperature boost of 5 degrees Celsius, accompanied by severe global consequences.

"We have to be clear that at 750 or more ppm, we're going to live in a world that is extremely uncomfortable and very dangerous," he said.

The cost to slow the trend would be somewhere between 1 and 2 percent of gross domestic product--a bargain, Stern said, given the cost of inaction. "Most people are willing to take 2 percent of GDP to avoid the scale of damages," he said. "The cost of action is much less than the cost of inaction."

A version of this article appeared in MIT Tech Talk on November 28, 2007 (download PDF).

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