The Stern Review warns of the global economic consequences of failing to act on climate change and urges global action on both mitigation and adaptation.

The Stern Review was commissioned by the Treasury in July 2005 to examine the economics of climate change. It was led by Sir Nicholas Stern, head of the Government Economic Service and former chief economist of the World Bank, and his report was issued on October 30, 2006.

Stern warns of the global economic consequences of failing to act on climate change (CC) and urges “prompt global action” on both mitigation and adaptation.
On mitigation, the power sector will need to be at least 60% decarbonised by 2050 through strategies such as: carbon pricing through taxation; emissions trading and/or regulation, so that people are faced with the full social costs of their actions; international co-operation in boosting low carbon technology; research and development; price signals and markets for carbon; and action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change.

Adaptation to change already occurring is essential, particularly in the poorest developing countries, which will be hit earliest and hardest by CC, and which will be least able to cope.

A UK Perspective
From a UK perspective, the review hints that the impact of climate change may be mixed – with temperature rise possibly offset to some extent by reductions in the heating effect of the Gulf Stream. Possible impacts on the UK energy sector have been addressed in the Met Office Report of 26 May 2006 .

The report is absolutely right to take a rigorous look at the potential costs of adaptation and mitigation. Too often this part of the analysis has been missing from the breathless depictions of climate change in the style of movie ‘The Day after Tomorrow’. Stern also points out that he has applied leading edge methodologies, models and tools in carrying out his economic assessments. One may argue on the applicability of some of these approaches  to the complexity of CC and its impact on the global economy. Given this was an economic review of the CC issue, it is somewhat surprising that Stern did not introduce a cost minimisation approach. The review does mention a cost for inaction/adaptation and a cost for mitigation, but does not carry this through to a quantitative assessment of  the variation of these costs with temperature differentials; Delta-T (or CO2 ppm).

The review would have been more comprehensive if there was a level of quantitative analysis and assessments on the cost minimisation graph (fig 1). Finding a global optimal solution is not practical because of the geographic variations in CC and the long time-frames. However, if we look at a specific region it may be possible to look at some degree of optimisation and the cost minimisation graph may have some applicability. He does recommend a target stabilising of CO2 concentrations to 450 to 550 ppm (projected to result in a Delta-T of about 2ºC), and argues that the benefits of strong early action far outweighs the costs of inaction.

The Energy Sector and Adaptation
Some of the adaptation measures relevant to the energy sector are: hardening transmission and distribution systems to withstand more severe storms; coping with changes in temperature and humidity-dependent load demand patterns; coping with extreme temperature impacts on equipment and plant ratings; ensuring supply security with changed production levels at generation plants due to changes in wind patterns (wind farms), water flows (cooling of thermal plants), air density (CCGT); emergency response/restoration teams and plans; and back-up system control centres and telecommunication systems.

There is also a need for improved monitoring and recording of climate data and associated analysis and projections on which to base infrastructure design. In other words, do not rely on historical data in designing for new long-life power infrastructure investments.

Climate Change and the Required Skills to Deliver Benefits
As with the Energy Review Report, published a few months ago, the Stern Report is remarkably sanguine on whether there will be the skills available to deliver the benefits in the CC space. There is some reference in section 16.5 of the review, but no real answers or suggestions are made. In fact, this section instead recommends further attention to energy storage. The strongest skills mention comes later, in 16.7, where Stern notes “capacity constraints may arise because of a shortage in a required resource. For example there may be a shortage of skilled labour to install a new technology”. The nuclear timescales may be sufficiently long to warrant the Nuclear Industry Association’s belief “that nuclear skills are available for new nuclear build and that potential skills pinch points can be managed through long-term planning and training programmes.” However, skills will also be required for renewables, CHP (Combined Heat and Power) and energy efficiency, plus CCGT (Combined Cycle Gas Turbine), CCS (Carbon Capture and Storage) and the associated networks and transmission  infrastructure. Another key message in the report is the need for adaptation measures to cope with the climate change already occurring. This is particularly relevant to the poorer developing countries, which will be hardest hit by the impacts of CC due to their lack of resources and ability to cope. Surely one can again question the availability of skilled labour to help out with this.

The Review and the Aviation Industry
In a recent report by The Tyndall Centre, it was revealed that there is an enormous disparity between the UK’s position on carbon reduction and the government’s inability to recognise and adequately respond to the rapidly escalating emissions from aviation. Results showed that, at an annual growth rate of only half of that experienced by UK aviation in 2004, the UK’s aviation sector accounts for 50% of permissible emissions in 2050 under the 550ppm regime, and consumes the entire carbon budget under the 450ppm level. Key project conclusions were: the UK government must urgently update its aviation forecasts; without swift action to curtail aviation growth, all the other UK sectors will have to almost completely decarbonise by 2050 to compensate; the proposed partial inclusion of aviation within the EU’s emissions trading scheme will do little to mitigate carbon emissions; and aviation growth must be curbed until sufficient steps are taken to ensure fuel efficiency gains balance growth in activity, or until there is widespread use of alternative fuels that significantly reduce the industry’s carbon emissions.

Stabilising atmospheric carbon dioxide concentrations at or below 550ppmv is widely believed to be necessary to avoid ‘dangerous climate change’. One key aspect was that, while it may be possible to radically reduce or eliminate carbon emissions associated with buildings, energy production and land transport, no alternative to kerosene for aviation was foreseen within 50 years. Therefore, if air transport continues to grow at current rates most of the good work in other sectors will be undone.

International Cooperation and Green Business
International cooperation is clearly essential to combating this problem. But international cooperation cannot mean that all countries contribute equally. Some politicians still seek to argue that there is no point in the developed nations taking steps to combat global warming while China, for example, is opening one new coal-fired power station every week. The latter argument doesn’t really make much sense. Developing countries such as India and China may be the fastest growing contributors to greenhouse gas emissions, but this must be seen in context. The average US citizen still produces six times more carbon emissions than the average Chinese citizen, according to the World Resources Institute. It is therefore incumbent on the West to take a lead.  On the other hand, one may argue that in order to get the global agreement needed, the US (and Europe to a certain extent) must accept the need to invest heavily in China to decarbonise its economy and this surely will raise some complexities of its own.
It is worth noting that the winners and losers may be crucial to gaining any international agreement going forward. The use of a very low ‘social’ discount rate by Stern in reaching his conclusions on costs and benefits has come under severe criticism as being unrealistic. The private sector tends to apply commercial discount rates, and governments also tend to use higher discount rates than mentioned in the report, suggesting that the real costs may be higher than indicated. Combine this with the fact that democratic governments tend to prioritise issues that are perceived to deliver short term gain, it is doubtful that it will be possible to achieve international agreement on “prompt global action” on mitigation as called for by Stern.  If so, perhaps we should be devoting more attention to adaptation. This is particularly relevant to the energy sector. One argument is that investment in adaptation shows a clearer benefit and return compared to investment in mitigation, due to the associated uncertainties as to how much impact CO2 concentrations are having on CC. 

Green feasibility
While the Chancellor should be congratulated on commissioning the Stern Review, he might also think about how to make it feasible and easier for business to be green. The climate change levy, for example, is a  tax on energy, not a targeted tax on carbon. Business will find it difficult to respond to changes in the environment, if the environment is hostile to business. Stern argues that the world does not need to choose between averting climate change and promoting growth and development. Sensible decisions, not emotional responses, are therefore required and the planet deserves the benefit of the doubt.

It is the authors’ belief that the skills and resources needed, world-wide, to respond to the mitigation of and adaptation to CC are immediate and fundamental. CC is patently only understood by relatively few. This failure is one of the major reasons why there is a delay in reacting to meet the threats worldwide. The current UK government has recently identified the lack of Science and Engineering students from Primary Schools to Universities as a national threat. It is a world threat in meeting CC. Stern’s conclusions must initiate creating, developing and utilising these essential skills and resources.

There are still some doubters who will continue to argue that an unproven scientific theory just a few years ago has become a fashionable consensus, which could lead to the rash endorsement of untested policies. But there is one certain message we must absorb from Stern: the only option that should be ruled out is doing nothing.