The Economics of Climate Change: (i) Risks, Targets (ii) Adaptation (iii) A Global Deal Nicholas Stern UNGA Thematic Debate 31 July 2007

Part One Impacts and Targets

Projected impacts of climate change 1°C2°C5°C4°C3°C Sea level rise threatens major cities Falling crop yields in many areas, particularly developing regions Food Water Ecosystems Risk of Abrupt and Major Irreversible Changes Global temperature change (relative to pre-industrial) 0°C Falling yields in many developed regions Rising number of species face extinction Increasing risk of dangerous feedbacks and abrupt, large-scale shifts in the climate system Significant decreases in water availability in many areas, including Mediterranean and Southern Africa Small mountain glaciers disappear – water supplies threatened in several areas Extensive Damage to Coral Reefs Extreme Weather Events Rising intensity of storms, forest fires, droughts, flooding and heat waves Possible rising yields in some high latitude regions

Stabilisation and eventual change in temperature 1°C2°C5°C4°C3°C 400 ppm CO 2 e 450 ppm CO 2 e 550 ppm CO 2 e 650ppm CO 2 e 750ppm CO 2 e 5%95% Eventual temperature change (relative to pre-industrial) 0°C

Aggregate estimates of impacts Essential to take account of risk and uncertainty Assumptions on discounting, risk aversion and equity affect the results Models should not be taken too literally Baseline climate High Climate Market impacts 5%7% Broad impacts 11%14% Magnitude of effects in middle of plausible range taking into account sensitivity analysis in review and effects omitted from modelling Damage function exponent Consumption elasticity of social marginal utility (η) ( )6.0 ( )3.3 ( ) ( )10.0 ( )5.2 ( ) ( )29.3 ( )29.1 ( )

Delaying mitigation is dangerous and costly Stabilising below 450ppm CO2e would require emissions to peak by 2010 with 6-10% p.a. decline thereafter. If emissions peak in 2020, stabilisation below 550ppm CO2e requires annual declines of 1 – 2.5% afterwards. A 10 year delay almost doubles the annual rate of decline required.

Part Two Adaptation

Threats All countries vulnerable to impacts of climate change: e.g. London, California But developing countries hit hardest and earliest Climate change will threaten all aspects of the development agenda Income poverty and hunger Direct and indirect health effects Dislocation, migration and conflict Some effects already here

Adaptation and development Development key to adaptation: enhances resilience and increases capacity Adaptation vital for development progress and reduces costs of natural disasters Adaptation requires economy-wide planning and regional co-operation –Leadership and co-ordination is essential: key role for Heads of Government, Finance and Economic Ministries 9

International support for adaptation Link between development and adaptation has implications for ODA scale and focus Equity requires assistance from rich countries as main source of climate problem Adaptation will put strong pressure on developing country budgets and ODA: essential to meet commitments made to double aid flows by 2010 UNFCCC process and funds essential to support capacity-building and prioritisation Additional ODA flows will be a bigger source of funding for adaptation and development

Global public goods for adaptation International action also has a key role in supporting global public goods for adaptation: –Forecasting climate and weather –Disaster response –More resilient crop varieties –Technologies for water conservation and irrigation –New methods to combat land degradation –Prevention and treatment of malaria and other water- and vector- borne diseases

Part Three A Global Deal

Key elements: Mitigation - Targets for mitigation- Policies for markets - Policies for technology- Avoiding deforestation Adaptation: see Part Two. Key understandings: Consistency of (i) growth (ii) climate responsibility (iii) energy security and other co-benefits Importance of potential linkages in international agreements between climate change, trade, development, security etc. Need heads of governments involved externally as well as internally

Targets Agree stabilisation level – eventual concentration (stock) in region of 500ppm CO 2 e Global emissions (flow) cuts of 50% by 2050 relative to 1990 Rich countries, given historical responsibility, know-how, ability to pay (incomes) and per capita emissions to take on national emissions cuts of 60-90% by 2050 relative to 1990 – % by 2020 Individual countries to chose own mix of actions and instruments

Policies (I): Balance of responsibility and the role of trading Rich country reductions and trading schemes designed to be open to trade with other countries, including developing countries Supply side from developing countries simplified to allow much bigger markets for emissions reductions, through sectoral or technological benchmarking Together with demonstration and sharing of technologies, combination of demand and supply side for emissions reductions can, with appropriate market institutions, provide incentives for developing countries to play strong role in global deal, eventually taking on their own targets.

Policies (II): Technology Public energy R&D investments as a share of GDP Double public energy R&D ($10bn to £20bn) and increase deployment support 2-5 times from current $37bn. Share technologies with developing countries

Policies (III) Avoiding deforestation Curbing deforestation is highly cost-effective, and significant Forest management should be shaped and led by nation where the forest stands Large-scale pilot schemes could help explore alternative approaches to provide effective international support There should be strong international support for action to avoid deforestation – e.g. a fund for five years of $10-15bn per annum could cut deforestation in half.

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