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HM Governor's Office

in Anguilla

• أولمبياد لندن 2012

Economy

'The current financial crisis looks like nothing compared to the environmental collapse of climate change'

- Lord Turner of Ecchinswell, Chair of the Committee on Climate Change and Financial Services Authority

Cost of action vs inaction

The cost of combating climate change depends on when we start, and thus how much time we give ourselves for influencing lifecycles of investment and developing new technologies.  The earlier we begin, the less cost we will face, and the quicker we also reap the positive social and environmental benefits.

In his highly influential report for Government, Stern Review Report on the Economics of Climate Change, 2005, Lord Nicholas Stern became one of the first figures to capture the wide attention on the economics of climate change. His latest concluded:

• The cost of climate mitigation would be around 1-2% of world GDP per annum by 2050 (for holding concentrations at 500-550 ppm CO2)

 

• Whilst the cst of inaction - that is, business as usual - will incur a loss equivalent to between 5 and 20% of GDP per annum now and forever. Lord Stern himself has since said that, on the basis of more recent scientific evidence, the risks associated with rising average global tempreatures may have been underestimated and the impacts may be greater than anticipated at the time of the Stern Review.
  

Pricing externalities

Economically, climate change is the biggest market failure the world has seen. Policy intervention is required to address the negative externalities that climate change poses. The European Emissions Trading Scheme (EUETS) is an example of how pricing carbon can reduce emissions. The rationale behind emission trading is that it enables emission reductions to take place where the cost of the reduction is lowest thus lowering the overall costs of combating climate change. Pricing carbon through taxes, tradable permits or implicitly through regulation, also helps ensure that the externality costs are reflected in business decisions.

Decoupling emissions and growth

The UK has proven that it is possible to achieve economic growth on a low emissions trajectory, and has successfully decoupled economic growth from emissions:

• UK economy has grown by 48% since 1990, whilst actual emissions have fallen by over 20%
• The EU economy has grown by 40% since 1990; whilst emissions have fallen by over 7%
  

Many of these savings come from efficiency improvements and less carbon-intensive energy sources. 

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