Tackling Climate Change: A benefit worth the cost?
A well-respected development economist and former chief economist at the World Bank has delivered a challenging report to the world community on climate change. Sir Nicholas Stern's 700-page report suggests that climate change is one of the most obvious examples of market failure known to humankind. He warns of grave consequences if the world does not move quickly to tackle the problems that climate change will bring. These problems include a greater risk of drought and flood that could see the world having to deal with 200 million refugees. In addition, the problems caused by climate change would affect wildlife, with up to 40% of species at risk of extinction. Sir Nicholas suggests that the world's gross domestic product (GDP) could be hit hard, causing the global economy to fall by up to 20%. The poorest nations will be the first to suffer and will suffer the most.
  
The increase in the use of resources and the effects on the climate are likely to increase incidences of flood and drought and change the face of the planet. The poorest will suffer both first and the most from these changes.Copyright: Cheryl Empey, Sándor Balázs and Adrian Lynch, all from stock.xchng.
Sir Nicholas suggests that the response to the problem has to be international, with rich nations who are currently the most polluting, such as China and the United States, taking the lead. Action needs to be taken now, he argues, if the long term consequences are to be prevented. Reducing carbon emissions and taking the difficult decisions that need to be taken will cost the global economy around 1% by his team's calculation. The benefits, however, would come in at around 20% - the global economy would be better off by this amount if we took action now to address the problem. Sir Nicholas argues that the present value of taking action over climate change compared to the costs is a surplus of $2.5 trillion (£1.32 trillion). That's 2.5 with 11 zeros after it! Using such a basic cost benefit approach, the choice seems obvious.
Sir Nicholas suggests two basic ways to deal with the problem - taxing the polluters and carbon trading permits. The solutions are easy to read up on in Biz/ed and almost any economics textbook. The political will of the international community to act on the recommendations made by Sir Nicholas is something else, however.
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