The Stern Review, the most comprehensive review ever on the economics of climate change, was published today (as I previewed yesterday). The report is nothing if not thorough. All 27 chapters are now available on the Treasury website to download - or I guess you can wait until January and pay Cambridge University Press £29.99 for the book (CUP obviously don't believe in print on demand!). Also available is today's Press notice, along with Sir Nicholas Stern´s presentation (PDF), and speaking notes (PDF).
Sir Nicholas said in his presentation that "we have to muster all the economics we can bring to bear" on climate change - a sentiment few readers would disagree with. Here is a short excerpt from his presentation:
The science tells us that GHG emissions are an externality; in other words, our emissions affect the lives of others. When people do not pay for the consequences of their actions we have market failure. This is the greatest market failure the world has seen. It is an externality that goes beyond those of ordinary congestion or pollution, although many of the same economic principles apply for its analysis.
This externality is different in 4 key ways that shape the whole policy story of a rational response. It is: global; long term; involves risks and uncertainties; and potentially involves major and irreversible change.
Although the press have highlighted some of the doomsday warnings in the report, these are based on the 2100 'business as usual' scenarios - not on likely developments anytime soon. As Sir Nicholas said today, the Review's conclusion are "essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. He spelled out three strands to policy:
First, we must establish a carbon price via tax, trade and regulation – without this price there is no incentive to decarbonise. Second, we must promote technology: through research and development. Further, private sector investors need confidence that there will be markets for their products: that is why deployment policy also makes sense. And third we must deal with market failure; for example problems in property and capital markets inhibit investments for energyefficiency.
The usual suspects have rushed to condemn the report - some even before it was published. Like Sunday Times journalists and blogger David Smith, I won't comment on it in detail until I've had a chance to read it. But I certainly agree with David's comment that:
..the broad thrust of his report, that money spent now will save much bigger costs later, makes sense, as does his emphasis on carbon trading.