Blueprint for a global deal

by Bryan Walker on June 2, 2009

The Global Deal: Climate Change and the Creation of a New Era of Progress and Prosperity

It is two and a half years since the landmark Stern Report to the UK government was released. It called climate change “the greatest and widest-ranging market failure ever seen” and concluded that the benefits of strong and early action to reduce emissions far outweigh the economic costs of not acting. At 700 pages it was a daunting document.  Now Nicholas Stern has written a book which updates his thinking and explains it in terms which non-economists will readily be able to follow — The Global Deal: Climate Change and the Creation of a New Era of Progress and Prosperity (US edition – confusingly published in the UK under a different title Blueprint for a Safer Planet.) Stern has a long-standing involvement with efforts to overcome poverty in developing nations.  He makes it clear from the start that combating climate change is inextricably linked with poverty reduction as the two greatest challenges of the century and that we shall succeed or fail on them together – to tackle only one is to undermine the other. This theme is frequently sounded in the book, and is an indication of the humanity which he brings to his task, as well as the realism.

Stern recognises we are on track to end-of-century temperatures of 4-5 degrees centigrade or higher relative to 1850, enough to rewrite the physical and human geography, with the prospect of massive and extended human conflict.  He firmly dismisses those who deny the dangers and the urgency of action.

The target level he focuses on for risk reduction is a maximum 500 parts per million CO2 equivalent. (CO2e includes the greenhouse gases other than CO2 and 500 ppm is roughly equivalent to the more commonly used 450 ppm CO2. The current level of CO2e is estimated at around 430 parts per million.) The target of 550 ppm CO2e adopted by the Stern Report he now considers too risky.  He notes that even at 500 ppm CO2e the risks are high – a probability of over 95% of a temperature rise greater than 2 degrees, but only a 3% chance of it being above  5 degrees. So although he uses the 500 ppm CO2e target for the purposes of the book he readily acknowledges the likely need for downward revision – probably to 400 ppm CO2e to have a fifty-fifty chance of limiting the temperature rise to 2 degrees.

A very positive section outlines the technologies already available for the task and  summarises what we must do under four headings: make more efficient use of energy;  halt deforestation; put existing or close-to-existing technologies to work quickly, including carbon capture and storage; invest strongly in new technologies which are on the medium-term horizon. The resulting low-carbon world, ushered in by a new burst of innovation, creativity and investment, will be a very attractive one in which to live. “It is a world where we can realise our ambitions for growth, development and poverty reduction across all nations, but particularly in developing countries.” This is not a fancy. Previous examples of rapid change show it can be done.  Stern’s contacts in the many places he visits and speaks leave him with a strong impression of the vast entrepeneurship and creativity which can be released given the right policy frameworks. This is one of the cheering themes of the book.

The cost is reasonable.  Drawing on McKinsey analyses to discuss cost, he concludes that  2% of GDP per annum will do it, a level smaller than some which our economies already cope with in terms of exchange-rate movements or changes in trade terms. It can be thought of in terms of an extra six months for the world economy to reach the level of world income it would otherwise reach by 2050.

There is no ‘versus’ between mitigation and adaptation. Stern descibes several ways in which different countries are taking adaptation measures and makes it very clear that adaptation is particularly important for developing countries, hit earliest and hardest by consequences for which they bear no responsibility.  He quotes Archbishop Tutu with approval: “I call on the leaders of the rich world to bring adaptation to climate change to the heart of the international poverty agenda — and to do it now, before it is too late.”

So far as Stern is concerned the ethical demand to act on climate change needs no further justification than that provided by the risks of inaction and the costs of action which he covers in the early chapters of the book.  But because many economists use a more formal and model-based discussion of how to balance the costs of inaction against the cost of action he devotes 20 pages of the book to examining how and why a number of high-profile economic analyses have got things badly wrong. The costs of inaction are much larger than are understood by many of the economists who have argued for it.  Even his own Stern Report is now shown to have been too cautious on the growth of emissions, on the deteriorating absorptive capacity of the planet, and on the pace and severity of the impacts of climate change.  The “slow ramp” approach advocated by some of his critics would lead to concentration levels so high as to be unthinkable.

Policies need to be effective, efficient and equitable. Different countries can have different combinations of policies relating to carbon taxes, carbon trading on the basis of quotas, and regulation. But the overall level of ambition needs to be strong and equitable, and there must be a strong role for trading schemes which allow international trade in greenhouse gas reduction – this trade both improves efficiency and provides incentives for developing countries to join in international action. He has an excellent section on the conditions which will enable trading schemes to work to the desired end.  The explanations of the necessity of international trading schemes as part of the mix for emission reduction were one of the highlights of the book for me, and made very clear the contribution that economists can bring to the enterprise.

We must have a global deal. The world needs an overall 50% cut in emissions by 2050 relative to 1990. Towards achieving this the developed countries need to agree to a 20% to 40% reduction in their emissions by 2020 and to 80% by 2050.  Within this time frame they need to demonstrate that low carbon growth is possible and affordable.   The developing countries need to commit, subject to the developed countries’ performance, to take on targets by 2020 at the latest. Their emissions should peak by 2030, or 2020 for the better-off among them. They should be integrated into trading mechanisms both before and after their adoption of targets.

In discussing funding he focuses on three areas. First, deforestation, responsible for 20% of global emissions.  There is a need for strong initiatives, with public funding, to move towards halting deforestation now. We should prepare to to include avoided deforestation in carbon trading.  Second, technologies must be developed and shared.  Carbon capture and storage figures strongly here and elsewhere in the book. It is highly important if only because of the significance of coal for China and India and he calls for financial commitment to help fund thirty-plus new commercial-size plants in the next seven to eight years.  His final plea is that rich countries deliver on their commitments to overseas development assistance, with extra costs of development arising from climate change.

He relates climate change policy to the current economic turbulence by pointing to two key lessons. First, that the financial crisis has been developing over 20 years and surely tells us that ignoring risk or postponing action is to store up trouble for the future. Second, to grow out of the recession we need a driver of growth which is genuinely productive and valuable.  Low-carbon growth can easily be that driver.

The book is a mine of information and helpful explanation of how proposed policy measures can work. Stern has worked closely with politicians and policy makers and obviously has familiarity with how they work and think. That doesn’t mean he has been taken over by political calculations as to what is possible or not.  Quite the contrary.  He is firm on the primary responsibility of the rich nations to steer the world through to a co-operation on climate change which will both lower emissions and at the same time bring the benefits of development to the poorer nations.  He is not afraid to sound a visionary note when he considers the good that can flow to all countries if we rise adequately to the challenge of a planet in peril. I was heartened as well as informed by his book.

{ 18 comments… read them below or add one }

Doug Clover June 2, 2009 at 10:21 am

Gareth

Measures that make more efficient use of energy and halt deforestation should be happening even without CC. CC is just one (very big I admit) symptom of an unsustainable society.

These measures are low risk as they provide otheer co-benefits that will benefit us all over the longer term.

Doug

Bryan Walker June 2, 2009 at 2:49 pm

Doug, deforestation is an issue Stern spends some time on. He states that the forest and the land on which it stands should be put to the use with the highest social value, according to valuations which take proper account of all the impacts. He points out that often the alternative use of the land has a direct ‘use value’ of just a few dollars per hectare pa, whereas the value as forest is far higher. Part of that value is absorption and storage of CO2, but he also refers to such factors as biodiversity, erosion control and even what he calls simple existence value (the satisfaction people have from knowing the forest has not been destroyed.)

He sees growth as essential because without it he thinks it would be extremely difficult for the poor people of the world to lift themselves out of poverty, but he makes it clear he’s not talking about indefinite expansion. It’s low carbon growth that he focuses on – a growth which he describes as ‘cleaner, safer, quieter and more diverse’. He talks of ways of living that can be sustained over time, particularly in relation to the environment. I think he’d agree with you.

nicol design June 12, 2009 at 5:22 am

Possibly it is very useful to separate “growth” and “development.” Growth being economic growth as we have become used to referring to it since the end of WW II or so: growth in the GDP, in economic activity of all kinds, positive and negative, bales of wool and the costs of containing… chemical spills for example. Development being qualitative improvements in the economy: bales of wool and the development of chemicals that don’t have to be contained…

Saves us from getting caught in the idea that we can somehow “grow” our way out of poverty…

Bryan Walker June 12, 2009 at 10:59 am

Nicol, although Stern sticks with the word growth, particularly in relation to the poor people of the developing world, he also makes it clear that he doesn’t claim the world can continue to grow indefinitely and that a picture of indefinite expansion is an implausible story of the future. He sees two things as key: “first, to find a way of increasing living standards (including health, education and freedoms) so that world poverty can be overcome; and second, to discover ways of living that can be sustained over time, particularly in relation to the environment.” His insistence on the need for growth is very closely tied to overcoming poverty, and the word development is the one he most commonly uses when speaking of that process. I wouldn’t think this is at odds with your preference.

R2D2 June 14, 2009 at 4:21 pm

Gareth, I think the title of this article has a typo, if should read:

“Blueprint for global government”

At least drawing from the “2% of GDP per annum” fund that is what we will end up with.

Bryan Walker June 14, 2009 at 5:04 pm

R2D2 is this one of the Ian Wishart feverish fantasies that you’re giving voice to?

R2D2 June 14, 2009 at 6:05 pm

What part is a fantasy? The UN negotiating text mentions the 2% of GDP measure. The money would go to the UN who would redistribute it. What part is fantasy?

You can call this an adaptation fund, or a mitigation fund, but it is still the first step towards world government. (Put lip stick on pig, but you still have a pig).

The EU traces its origins to the European Coal and Steel Community. The world government may well one day trace its origins to the UNFCCC.

Steve Bloom June 14, 2009 at 6:34 pm

What a shiny hat you have, R2.

Bryan Walker June 14, 2009 at 6:51 pm

R2D2, Stern is not talking about 2% of GDP given to the UN. 2% of GDP is his estimate of the cost of mitigation measures relative to continuing with business as usual. It may be more if we delay starting. It may be less if substantial technical progress means the costs are lower than estimated. Mitigation measures will no doubt include some transfers of money from rich countries to poor countries, which simple justice would endorse. World government? Hardly.

R2D2 June 15, 2009 at 1:11 am

Shiny hat?

http://unfccc.int/resource/docs/2009/awglca6/eng/08.pdf

Para 173, Option 1.1

Its in the fricken negotiating text for Copenhagen, I don’t think I am tin foil hat wearer (That comment is a low retort).

Lets think about this for a sec, all developed countries contributing between 0.5-2% of GDP to a global fund to help poor countries handle climate change. For some people the ends justifies the means. So called “Tin Foil hat wearers” have been saying this is the end game all along and now we’re almost there.

Even if this option isn’t agreed too at Copenhagen for CP2, you can bet it will pop up again for CP3 negotiations.

Ahh but these things about world government are just Wishart fantasies. Trust the UNFCCC, they are here to help. They don’t want a world tax but we need it to mitigate climate change. Thats all. No need to worry, now just hand over you hard earned money. Now what channel were the play boy bunnies on again? I need to get back to reality.

Bryan Walker June 15, 2009 at 9:09 am

R2D2 I thought you were referring to Stern’s estimate of the costs of mitigation since this was the thread in which you made your comment. I see that you are talking about a different 2%. I hope we’ll pay whatever it takes to enable developing countries to leapfrog the CO2 emission path to development, and it w0uld be a matter of surprised delight for me if the negotiations settled on the high end of the options. Talk of conspiracies to establish world government just look silly to me in the context of the overwhelming seriousness of climate change. Indeed they look silly to me in any context.

Gareth June 15, 2009 at 1:21 pm

I need to get back to reality.

Let us know when you find one that’s a bit more like the place the rest of us occupy.

Word to the wise: “one world government” stuff is OT on HT. There are places where it’s de rigueur, however…

samv June 17, 2009 at 6:28 pm

You can call this an adaptation fund, or a mitigation fund, but it is still the first step towards world government. (Put lip stick on pig, but you still have a pig).

This is a non-sequitur, of course. That there exists an example of global co-ordinated fund or spending does not imply that global governance must follow. Again we see a logical fallacy from an inactivist.

password1 June 17, 2009 at 8:32 pm

At well over 200 pages, there is a lot of stuff mentioned in the negotiating text. If it isn’t in there, it can’t be negotiated. People might be interested in an overview of the discussions held lately in Bonn. See this summary:
http://www.iisd.ca/vol12/enb12421e.html – look for the ‘brief analysis of the meetings’ section at the bottom.

AndrewH June 18, 2009 at 2:12 pm

If the UNFCC can achieve world governance at a tax take of 0.5 – 2% then they can have my vote…sure beats the current regime!

(with apologies for being OT)

R2D2 June 18, 2009 at 7:18 pm

OK, I had left this as I was told it was off topic, but as comments have been allowed to stand I guess that has been dropped.

Samv: A global tax to me implies that global government already exists. Do we really need another huge bureaucracy?

Password1: Its 53 pages, not 200. Its an outline of the main negotiating numbers. It is highly likely some kind of fund will be set up (was it not agreed at Poznan?). There is plenty that is not in the text, for example rule changes on LULUCF.

Andrew H: OECD GDP = 39,889 T US dollars . We are talking a 183 – 734 billion bureaucracy, it wont save you a cent (around about, OECD doesnt equal Annex 1 I know). Do you think having the EU means French people pay less for national government??? Don’t count on it. This is wealth redistribution, its not going to provide you any service.

If you want to increase your taxes by 2% to pay for welfare in the third world nations then ‘vote’ (we dont get a vote in the UNFCCC sorry) for this. But it wont do anything to change the climate, it is global socialism in disguise. Orwell and Machiavelli would be amazed.

Even if you believe in this socialism the problem is what it will morph into. 0.5-2% of GDP will only be the start. Look at the EU, what starts as a trade block has taken sovereignty off nations inch by inch until soon there will be nothing left. Ireland turned down there Lisbon treaty but now they are going at it again. They will push and push until they get their way. …..Anyway enough from me.. get the feeling it is falling on deaf ears. Look into this stuff yourself PLEASE. Peace.

Gareth June 18, 2009 at 11:02 pm

Well, the problem, R2, is that when we do look into “this stuff”, it’s all too apparent that it’s nonsense.

That’s why it’s OT. Let’s keep it that way, please.

Steve Bloom June 19, 2009 at 1:51 am

“Put lip stick on pig, but you still have a pig.”

As we discovered recently in the U.S., one can have a governor of Alaska instead.

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