Stern regarded climate change as the greatest market failure ever seen. As we know, negative externalities is the form of market failure. As seen from the diagram on the left, the later actions of GHG emssion reduction happens, the higher the social costs thus marginal abatement costs.
Therefore, Stern called for immediate action to stablize GHG emission as he said 'the benefit of strong, early acton on climate change outweighs the costs' (Stern Review, p.xv). The economic impact Stern suggested is that, unabated climate change could cost at least 5% of GDP each year.
Climate change mitigation can mean using new technologies which are low-carbon or more eneergy efficient, or changing consumer behaviour. Developing new, low-carbon technologies according to Stern, could have great net benefit.
- By 2050, it is estimated that the markets for low-carbon technologies could worth at least $500bn.
- Shifting the towrld to a low-carbon path can benefit the economy by $2.5 trillion a year.
- Net cost could be limited to around 1% (+- 3%) of global GDP by 2050. However this is based on the assumption that the target of greenhosegas atmospheric concentration stablizes at 550ppm of CO2e (current level 430ppm; pre-Industrial Revolution 280ppm).
- The damage of CO2 we emit causes $85 worth damage each tonne; it only costs $25/tonne to cut down emission.
But how do we reduce carbon emission? Stern focused on three main elements of policy: carbon pricing, technology policy and energy efficiency.
- Carbon pricing will reveal the full social cost to people of their action thus increase the cost of generating CO2
- Support from global to technology research and development should be increased at least twofolds, such as draught-resistant crops and overseas delvelopment supports (from rich to poor countries).
The next blog will talk more about the economic models in the report.
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