1. Stern Review is independent Review was commissioned by the Chancellor of the Exchequer, reporting to both the Chancellor and to the Prime Minister. It’s remit was to assess the evidence, and build an understanding of the economics of climate change.
It's comprehensive: report of 2 halves, 6 parts, 27 chapters. Annexes and supporting docs on
The first half of the Review considers the empirical evidence on the economic impacts of climate change,
The second half of the Review considers the complex policy challenges involved in managing the transition to a low-carbon economy
creating price signals and markets for carbon,
spurring technology research
Promoting international collective action.

2. Working with Uncertainty
Population, technology, production, consumption
Emissions
Cumulative CO2 Emissions
Atmospheric concentrations
Radiative forcing
% Change in Global Cereal Production
The economics of climate change is driven by the science.
A defining characteristic of the topic: uncertainty. can’t predict the consequences of climate change with confidence;
those who say “we don’t know specific…” right
know enough to understand the risks.
So what are risks? Cascade of uncertainty
uncertainty fans out! So risk is at the heart of this analysis. So let's work through this process in more detail...
Temperature rise and global climate change
Probability
Direct impacts (e.g. crops, forests, ecosystems)
Socio-economic impacts

3. Projected impacts of climate change
Global temperature change (relative to pre-industrial)
0°C
1°C
2°C
3°C
4°C
5°C
Food
Falling crop yields in many areas, particularly developing regions
Possible rising yields in some high latitude regions
Falling yields in many developed regions
Water
Significant fall in water availability e.g. Mediterranean and Southern Africa
Small mountain glaciers disappear – melt-water supplies threatened in several areas
Sea level rise threatens major cities
Chart shows the projected impacts of climate change the darkening shade shows the increasing risk and intensity of impacts as temperatures rise. Mostly water
Note very much a development issue
- Rising water stress, low level flooding
- Falling farms incomes –economies are more dependent on agriculture
ALSO
- Malnutrition and disease
- Pressure for migration and conflict
Developed countries are not immune: - Water stress in southern Europe and California - Costs of extreme weather events (hurricanes, floods & heatwaves) - higher costs of insurance
- big planetary risks
Even if degrees I’ll read you some of the impacts:
Food: up to 60% more people at risk from hunger, with half the increase in Africa and W. Asia
Water: more than 1 billion people suffer water shortages, many in Africa (year:2080s).
Ecosystems: 20 – 50% of species face extinction (!!!)
Still risk abrupt and Major events: onset of irreversible melting of the Greenland ice sheet.
Ch 1, 3, 4, 5
Disaggregated impacts = key story, but can we model these magnitudes at an aggregate level? Can we pin large scale aggregate numbers on all these changes?
Ecosystems
Extensive Damage to Coral Reefs
Rising number of species face extinction
Extreme Weather Events
Rising intensity of storms, forest fires, droughts, flooding, heat waves
Risk of Abrupt and Major Irreversible Changes
Increasing risk of dangerous feedbacks and abrupt, large-scale shifts in the climate system

4. Stabilisation and Commitment to Warming5%
400 ppm CO2e
95%
450 ppm CO2e
550 ppm CO2e
650ppm CO2e
new evidence allows us to apply probabilities to projections
The red bars indicate 90% confidence range (near centre of range highest probability) based on two studies – IPCC Third Assessment Report (2001) and Hadley Centre (2004). IPCC because internationally agreed. Hadley because more recent, more sophisticated on probabilities.
The grey bars cover the range of 11 recent studies.
<Talk through briefly chart>
15 Min
Est of daamges degrees ice age
we went further (think matrix)
risk and uncert
value future generations (richer, existensial, time preference)
750ppm CO2e
Eventual temperature change (relative to pre-industrial)
0°C
1°C
2°C
3°C
4°C
5°C 4

5. Limit of coverage of some studies, including Mendelsohn
Socially
Market
‘Non -
Market’
contingent
Limit of coverage of some studies, including Mendelsohn
Projection
None
Some studies,
e.g. Tol
Bounded
None
risks
Matrix of modelling studies of damages:
^v vertical axis; whether models deal with uncertainty in outcomes
 horizontal axis: uncertainty in measurement
1) ag, energy 2) health, environ?? 3)????
socio economi
conflict/migration
1) Temp ch,
sea level rise
2) Precip??
3) Thermohalyine oceanic surrents
Collapse W.
Antarctic ice sh????
to bottom right-hand corner: more speculative but more relevant...
latest science (5 degrees in BAU not 3)
Consider feedbacks and irreversibilities such as weakened carbon sinks or methane releases in our high-climate sensitivity scenario.
Also human health, pests and diseases, the environment
We want to measure what counts not just count what we can measure
… simply don't cut it!
We need to grapple with hard to deal with issues & include aversion to risk in our calculus.
Did earlier analysis neglect important aspects? Leave that to you to decide
System
Limited to
Nordhaus and
Boyer/Hope
change/
None
None
surprise
Models only have partial coverage of impacts
Values in the literature are a sub-total of impacts
Source: Watkiss, Downing et al. (2005)

6. Sensitivity analysis: discounting
Do the numbers hang on the discount rate?
Up to 3% delta 6

7. Economics of Stabilisation
What are the options for action?
Concentrations now over 425ppm CO2e, rising at 2-2.5ppm per year; under BAU, concentrations would reach 450ppm CO2e in 10 years, (550ppm: 2035)
Stbn = get below 10GtCO2, emissions= earth's natural ability to absorb GHG.
<read 1 and 2> work with the investment cycle
550 – not a nice place to be
This demonstrates the feasibility of action
But what about cost? Next section
Source: Stern Review estimates
The stabilisation trajectories shown here all assume global emissions peak at between 2010 and The BAU is based on IEA forecast energy emissions, plus EPA non-energy projections.
Stabilising below 450ppm CO2e would require emissions to peak by with 6-10% p.a. decline thereafter.
If emissions peak in 2020, we can stabilise below 550ppm CO2e if we achieve annual declines of 1 – 2.5% afterwards

8. Estimating Costs of Mitigation
Expected cost of cutting emissions consistent with 550ppm CO2e stabilisation trajectory averages 1% of GDP per year.
Macroeconomic models: 1% of GDP in 2050, in range +/- 3%.
Resource cost: 1% of GDP in 2050, in range –1% to +3.5%.
Costs will not be evenly distributed:
Competitiveness impacts can be reduced by acting together.
New markets will be created. Investment in low-carbon electricity sources could be worth over $500bn a year by 2050.
Strong mitigation is fully consistent with the aspirations for growth and development in poor and rich countries.
So how do we go about estimating costs of meeting stabilisation paths?
1 approach is to look at main modelling exercises. These allow for all sorts of behavioural responses, but are very complex and driven by assumptions.
1% doesn’t say who pays
Commissioned a meta-analysis of key studies to help identify which parameters and assumptions are significant.
To reaffirm these findings:
2nd Resource costs: Much simpler and more transparent. Simply takes the cost of technologies required to de- carbonise economy.
Moreover, this should provides an upper bound on costs, as it does not take account for behavioural responses of producers and consumers to relative prices… 8

9. Strategies for Emission Reduction
Four ways to cut emissions:
reducing demand
improving efficiency
lower-carbon technologies
non-energy emissions
Emissions arise from a very wide range of economic activities.
4 ways to cut <read RHS>
All four routes to reduce emissions play a role. How they are combined will vary with sector and over time.
All countries around the world must be involved in action.
Note also that at present, land use is bigger than transport. curbing deforestation is highly cost-effective, and significant!

10. Illustrative Marginal Abatement Option Cost Curve
Resource cost approach requires an assessment of current and future technology costs.
array of technologies.
Purely illustrative. Can envisage hydrogen nascent science, energy efficiency low,… continuum
More technologically complex will fall fastest

11. Illustrative Distribution of Emission Savings by Technology
So how do we estimate resource costs? Take a broad illustrative portfolio of current and future technologies necessary to decarbomise the energy sector.
Why a broad illustrative portfolio?:
Note the importance by mid-century of Carbon Capture & Storage (CCS).
Land for biofuels
Many countries sit on stocks of hydrocarbons which can be extracted at very low cost: more than enough cheap coal, lignite, gas and oil to take world GHG concentrations well beyond 750ppm CO2e, with very dangerous consequences.
As a result, hydrocarbons may still make up over half of global energy supply in So extensive carbon capture and storage is likely to be required.  

12. Average Cost of Reducing Fossil Fuel Emissions to 18 GtCO2 in 2050
So this is how we went about estimating resource costs.
We took the weighted average (by contribution) of costs,
multiplied by mitigation required against baseline for 550ppm CO2e= 1% 2050 GDP.
V simple approach – and that's it's advantage. V transparent and with no substitution (you simply decarbonise a given lump of energy demand at whatever cost) = upper end estimate.
It allows for no attempt by consumers and producers to change behaviour to reduce energy intensity
= 1% GDP (2050), though this will be sensitive to assumptions about the pace of technological innovation and evolution of fossil fuel costs +/-3%

13. Key principles of policy
Climate change policy:
Carbon pricing
R,D&D
Related market failures and behavioural change
Consistency with other policy goals –
growth and energy security
This sets the framework in which policy can be considered.
3-pillars. Do any one only, and very costly. Eg, without pricing…
Efficient mitigation requires clarity on long-term global stabilisation goals …a comparable global GHG price
Price signals can be established in different ways appropriate to dif sectors :Requires clarity on long-term global stabilisation goals.
Requires Short-term flexibility in using market mechanisms, including both tax and trading
Favour scaling-up trading.
Prices not enough! Other signif externalities to be addressed
Requires cooperation on technology. This can take many forms – informal coordination of research priorities through to risk-sharing on large demonstration projects, technology transfer
Regulation/stds-creates a shadow price (cars, bldngs, wht goods)
To build trust, a shared understanding is key: global, consumers, producers, govts
Fair distribution of effort on emissions reductions for developed and developing countries. Not so hard (China and India ambitious plans, driven in part by co-benefits but also genuine awareness of the problem
Action on climate change can only effectively be sustained by public opinion in each country.
Treaties a weak tool for compliance, countries usually do honour international commitment where they conform to shared notions of responsible behaviour.

14. Conclusion from Stern analysis
Our understanding of the risks of climate change has advanced strongly.
We understand the urgency and scale of action required.
We know that the technologies and economic incentives for effective action are available or can be created
We are in a much better position now to use our shared understanding to agree on what goals to adopt and what action to take.
Will conclude under 3 heads: goals, policy principles, financing.
Our understanding of the risks of climate change has advanced strongly.
We understand the urgency and scale of action required.
We know that the technologies and economic incentives for effective action are available or can be created
We are in a much better position now to use our shared understanding to agree on what goals to adopt and what action to take.

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