Climate change – our approach

Part I Climate Change – our approach

Part I of the Review considers the nature of the scientific evidence for climate change, and the nature of the economic analysis required by the structure of the problem which follows from the science.

The first half of the Review examines the evidence on the economic impacts of climate change itself, and explores the economics of stabilising greenhouse gas concentrations in the atmosphere. The second half of the Review considers the complex policy challenges involved in managing the transition to a low-carbon economy and in ensuring that societies can adapt to the consequences of climate change that can no longer be avoided.

The Review takes an international perspective. Climate change is global in its causes and consequences, and the response requires international collective action. Working together is essential to respond to the scale of the challenge. An effective, efficient and equitable collective response to climate change will require deeper international co-operation in areas including the creation of price signals and markets for carbon, scientific research, infrastructure investment, and economic development.

Climate change presents a unique challenge for economics: it is the greatest example of market failure we have ever seen. The economic analysis must be global, deal with long time horizons, have the economics of risk and uncertainty at its core, and examine the possibility of major, non-marginal change. Analysing climate change requires ideas and techniques from most of the important areas of economics, including many recent advances.

Part I is structured as follows: •

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• Chapter 1 examines the latest scientific evidence on climate change. The basic physics and chemistry of the scientific understanding begins in the 19th century when Fourier, Tyndall and Arrhenius laid the foundations. But we must also draw on the very latest science which allows a much more explicit analysis of risk than was possible five years ago.

Chapter 2 considers how economic theory can help us analyse the relationship between climate change and the divergent paths for growth and development that will result from ‘business as usual’ approaches and from strong action to reduce emissions. We look at the range of theories required and explain some of the technical foundations necessary for the economics that the scientific analysis dictates.

The technical annex to Chapter 2 addresses the complex issues involved in the comparison of alternative paths and their implications for individuals in different places and generations. Building on Chapter 2, we explore the ethical issues concerning the aggregation of the welfare of individuals across time, place and uncertain outcomes. This annex also provides a technical explanation of the approach to discounting used throughout the Review, and in particular in our own analysis of the costs of climate-change impacts. STERN REVIEW: The Economics of Climate Change 1

1 Part I: Climate Change – Our Approach

The Science of Climate Change: Scale of the Environment Challenge Key Messages

An overwhelming body of scientific evidence now clearly indicates that climate change is a serious and urgent issue. The Earth’s climate is rapidly changing, mainly as a result of increases in greenhouse gases caused by human activities.

Most climate models show that a doubling of pre-industrial levels of greenhouse gases is very likely to commit the Earth to a rise of between 2 – 5°C in global mean temperatures. This level of greenhouse gases will probably be reached between 2030 and 2060. A warming of 5°C on a global scale would be far outside the experience of human civilisation and comparable to the difference between temperatures during the last ice age and today. Several new studies suggest up to a 20% chance that warming could be greater than 5°C.

If annual greenhouse gas emissions remained at the current level, concentrations would be more than treble pre-industrial levels by 2100, committing the world to 3 – 10°C warming, based on the latest climate projections.

Some impacts of climate change itself may amplify warming further by triggering the release of additional greenhouse gases. This creates a real risk of even higher temperature changes. • Higher temperatures cause plants and soils to soak up less carbon from the atmosphere and • cause permafrost to thaw, potentially releasing large quantities of methane. Analysis of warming events in the distant past indicates that such feedbacks could amplify warming by an additional 1 – 2°C by the end of the century.

Warming is very likely to intensify the water cycle, reinforcing existing patterns of water scarcity and abundance and increasing the risk of droughts and floods.

Rainfall is likely to increase at high latitudes, while regions with Mediterranean-like climates in both hemispheres will experience significant reductions in rainfall. Preliminary estimates suggest that the fraction of land area in extreme drought at any one time will increase from 1% to 30% by the end of this century. In other regions, warmer air and warmer oceans are likely to drive more intense storms, particularly hurricanes and typhoons.

As the world warms, the risk of abrupt and large-scale changes in the climate system will rise. • Changes in the distribution of heat around the world are likely to disrupt ocean and atmospheric circulations, leading to large and possibly abrupt shifts in regional weather patterns. • If the Greenland or West Antarctic Ice Sheets began to melt irreversibly