December 11th, 2013
Chair, Center for Climate Change Economics and Policy, London School of Economics
For the third year of the annual Stephen Schneider Award for Outstanding Climate Science, winner Lord Nicholas Stern gave an exciting talk about the economics of climate change. A distinguished economist, Stern is chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, president of the British Academy and a former chief economist of the World Bank.
Stern is best known for authoring the 2006 “Stern Review,” which concluded the costs of inaction are greater than the costs of action when it comes to climate change.
“In other words, the damage we do by waiting in terms of buildup of greenhouse gasses is likely to be much bigger than the investment cost that we have to incur now,” Stern said. “And to get that kind of answer, you have to turn to the science to try to understand what the cost of inaction are going to be.”
A recent report shows fossil fuel subsidies total a half-trillion dollars every year. But that number might be even larger because analyses don’t include implicit costs, such as letting people use appliance, cars and heating without paying for the damage they do, according to Stern.
“As Steve Schneider said, if you allow people to ‘use the atmosphere as a sewer,’ essentially, you’re not charging them for the damage that they’re doing,” Stern said. “Instead of throwing it in hydrocarbons, if you put it much more sensibly and more measured way into the right kind of investment, that itself would give you the kind of scale of response that you need.”
He discussed the reality of the G-20 summit in Pittsburgh that pledged to reduce fossil fuel subsidies: It’s happening, but slowly, Stern said.
The market plays a crucial role in determining the planet’s future, and in order to get anywhere, people should be charged for the damage they do. Policy should include a combination of making brown energy more expensive and green energy less expensive, he said.
“Abandoning or having no policy of any serious strength on climate change is essentially to do nothing about the biggest market distortion, the biggest market failure the world has ever seen,” Stern said.
“I mean, if you go and buy a meal, you expect to pay for the food, you expect to pay for the space in the restaurant if you're eating out, you expect to pay for the cost that arise because of your action,” Stern said. “If you're not paying for the cost that arise because of your action here, the emission of greenhouse gasses, you're going to do too much of that thing, and that's a market failure.”
But when you switch over from one activity to another, there’s dislocation in the process.
“I think most of the delay – and delay is extremely dangerous in this context – most of the delays are down to absence of political will,” Stern said. “And we can see that arising from a number of sources.”
“We have to look at ourselves and ask ourselves, ‘Have we done a good enough job at communicating?’ ” he said.
Stern reminisced about hearing Barack Obama’s speech in Chicago on the night of his first election about future generations and his later Georgetown speech, where the president mentioned a “planet in peril” as one of the key issues at the time.
“There's a great deal that we can do without taking legislation through Congress, and that's what we should do,” Stern said.
In regard to the carbon bubble, the hypothetical economic bubble that could affect the valuation of fossil fuel-based assets, Stern said we either have to leave about half the hydrocarbons in the ground or we’ll break the 2-degree warming level that will lead to a runaway climate.
“If we’re serious about climate change – which I sincerely hope we are and we’ll get more serious – then the more risky that investment to hydrocarbon is.”
To switch to alternative energy sources, both industries and shareholders have to recognize the displacement of transition. With industrial revolution, these kinds of things happen, Stern said. When electricity came in, those people who made their money on candles did no do as well.
“We have to recognize that those kinds of changes are necessary, and manage them as best as we can,” Stern said. “But not changing because some place will be dislocated is a recipe for disaster.
Stern spoke of how societies derive basic rights from a notion of common humanities. Climate change and green growth will have huge impacts on developing countries, but “I don’t think there’s any right to emit,” Stern said.
“To emit is to damage,” he said. “I don’t see that there's a right to damage but there is, it seems to me, a right to develop.”
While oil companies may not be the bad guys, Stern was concerned about the continued mistreatment of climate scientists.
“What I do think is villainous is to secretly find dishonest treatments of science,” Stern said. “Most scientists and some social scientists have to just carry on and keep going, and I salute those who do that.”
“There are some of those people in the room that've shown enormous personal integrity, strength of character, and they just keep going,” Stern said. “Of course, Steve Schneider was one of those.”
- Danielle Torrent
December 11, 2013
Photos by Ed Ritger
The Commonwealth Club of California