A report on climate change, commissioned by the UK’s finance ministry, calls for urgent action on climate change, including more emissions trading and investment in low-carbon technology.

The Stern Review on the Economics of Climate change, was commissioned by the Chancellor of the Exchequer in July last year. It has been carried out by Sir Nicholas Stern, Head of the Government Economic Service and former World Bank chief economist.

Adding up the costs of a narrow range of the effects, based on the assessment of the science carried out by the Intergovernmental Panel on Climate Change in 2001, the review calculates that the dangers of unabated climate change would be equivalent to at least 5% of GDP each year.

The review goes on to consider more recent scientific evidence (for example, of the risks that greenhouse gases will be released naturally as the permafrost melts), the economic effects on human life and the environment, and approaches to modelling that ensure the impacts that affect poor people are weighted appropriately. Taking these together, it estimates that the dangers could be equivalent to 20% of GDP or more. In contrast, the costs of action to reduce greenhouse gas emissions to avoid the worst impacts of climate change can be limited to around 1% of global GDP each year, it says.

If we take no action to control emissions, each tonne of CO2 that we emit now is causing damage worth at least $US85 – but these costs are not included when investors and consumers make decisions about how to spend their money, it points out. Emerging schemes that allow people to trade reductions in CO2 have demonstrated that there are many opportunities to cut emissions for less than $US25 a tonne. ”In other words, reducing emissions will make us better off. According to one measure, the benefits over time of actions to shift the world onto a low-carbon path could be in the order of $US2.5 trillion each year,” it says.

The shift to a low-carbon economy will also bring huge opportunities, the report finds. Markets for low-carbon technologies will be worth at least $US500 billion, and perhaps much more, by 2050 if the world acts on the scale required.

Tackling climate change is the pro-growth strategy; ignoring it will ultimately undermine economic growth, it says. “The conclusion of the review is essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge. Strong, deliberate policy choices by governments are essential to motivate change,” Stern said. “But the task is urgent. Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close.”

The review finds that all countries will be affected by climate change, but it is the poorest countries that will suffer earliest and most. Unabated climate change risks raising average temperatures by over 5°C from pre-industrial levels. Such changes would transform the physical geography of our planet, as well as the human geography – how and where we live our lives.

“Climate change is the greatest market failure the world has seen,” it suggests. Three elements of policy are required for an effective response, it says. “The first is carbon pricing, through taxation, emissions trading or regulation, so that people are faced with the full social costs of their actions. The aim should be to build a common global carbon price across countries and sectors.”

“The second is technology policy, to drive the development and deployment at scale of a range of low-carbon and high-efficiency products. And the third is action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change. Fostering a shared understanding of the nature of climate change, and its consequences, is critical in shaping behaviour, as well as in underpinning both national and international action,” it says.

The report finds that effective action requires a global policy response, guided by a common international understanding of the long-term goals for climate policy and strong frameworks for co-operation. Key elements of future international frameworks should include: emissions trading, technology co-operation, action to reduce deforestation, and efforts at adaptation.