Recession should be no excuse to defer plans to fight global warming

The adviser to the British government on the Economics of Climate Change and Development warned that the current financial crisis should not be an excuse for delayed or weak action to adopt ambitious plans to fight global warming.

Sir Nicholas Stern, a former chief economist of the World Bank, said that the aim of the 2008 Climate Change Conference that is taking place in Poznan, Poland is to move from discussions to a more formal mode of negotiation in 2009.

However, Stern said concerns that the financial crisis would make it too costly for the world to adopt ambitious plans to fight global warming could threaten the success of the meeting and damage prospects of addressing dangerous climate change.

Stern, author of the 2006 Review which concluded that the benefits of strong, early action on climate change outweigh the costs, emphasized that the current financial crisis should not be an excuse for delayed or weak action to cut emissions.

However, concerns that the financial crisis would make it too costly for the world to adopt ambitious plans to fight global warming could threaten the success of the meeting and damage prospects of addressing dangerous climate change.

“There are two crucial lessons we must learn from the financial turbulence the world has been facing. First this crisis has been 20 years in the making and shows very clearly that the longer the risk is ignored the bigger will be the consequences; second, we shall face an extended period of recession in the rich countries and low growth for the world as a whole,” Stern said.

He explained that lessons should be learned and take the opportunity of the coincidence of the crisis and the deepening awareness of the great danger of unmanaged climate change because now is the time to lay the foundations for a world of low-carbon growth.

“This moment is of special importance, not only for the opportunity it brings, but also because we are in the middle of the two-year journey from Bali, where negotiations were launched, to Copenhagen which hosts the crucial meeting of the UNFCCC at the end of next year when the world must craft and agree a global deal on climate change to replace Kyoto,” he said.

According to Stern, high-carbon growth, business-as-usual, will by mid-century have taken greenhouse gas concentrations to a point where a major climate disaster is very likely.

He said that the world risks a transformation of the planet so radical that it would involve massive movements of population and widespread conflict, put more prosaically, high-carbon growth will choke off growth.

“To manage the climate sensibly we must cut world emissions by at least 50 per cent by 2050, as recognized at the G8 summit in Japan this year,” he said

Given that rich countries’ emissions are far above the world’s average, Stern noted that their cuts should be at least 80 percent, as clearly recognized in Europe and in the UK with the government’s recent adoption of that target.

“We do not know the length of the recession we have now entered, but it is unlikely to be short. The relevant policies are being put in place to avoid plunging us further into crisis and to start to build a more robust financial system. But as banks rebuild balance sheets and look for higher capital ratios they will have to restrict lending,” he said.

Although monetary policy is important, Stern said it is unlikely to pull countries out of the recession any time soon noting that fiscal policy to expand demand must play a role. But increased government spending should be focused not just on boosting short-term demand.

“We must promote growth that can be sustained,” Stern said.

The coming period of growth, he said, can be firmly based in the low-carbon infrastructure and investments which will not only be profitable, with the right policies, but also allow for a safer, cleaner and quieter economy and society.

“And if, as we must, we halt deforestation, the source of 20 percent of greenhouse gas emissions, at the same time we can also protect and enhance our biodiversity and water systems.”

The International Energy Agency estimates that world energy infrastructure investments are likely to average around $1 trillion per annum over the next 20 years.

He pointed that if the majority of this is low-carbon and some of it is brought forward it will be an outstanding source of investment demand.

“So too, will be the investments for energy efficiency, many of which can be labor intensive and are available immediately,” Stern said. “It is surely clear that a program can be put together which both boosts demand in the short term and prepares for efficient, strong and sustainable growth in the medium term. It must be structured carefully with both public and private sectors working together.”

He said that it will be the private sector that makes most of the investments but the public sector must shape the incentives and the investment climate that allows the investment to take place. That will mean working with the EU and the UNFCCC in Copenhagen to sustain a price for carbon, by use of carbon trading and taxation. It means regulation, for example, on car emissions to give clear signals that allow economies of scale and reduce uncertainty.