The G20 receives some Stern advice

“Inaction will be more costly than action” was the central message of the 2006 Stern review: the most influential report on climate change to date. The ‘cost’ that Lord Nicholas Stern refers to is both financial and environmental. Not only is it in the interest of our planet to act immediately on climate change but it is in our economic interest to do so as well.

Yesterday Lord Stern held a press conference at the German embassy in London to discuss his latest environmental report which is due to be submitted at the G20 summit on Thursday. The 48 page report ‘Towards a Global Green Recovery’ summarises his recommendations for G20 action, among them seven specific strategies for both short and long term economic recovery by green investment.

The global financial crisis will be the main focus of the G20 meeting. As the need for fiscal measures in the short term becomes more apparent the opportunity for wide scale investment presents itself. The economy is in need of a strong fiscal boost at a time when resources are relatively cheap and workers are underutilised.

Stern told the press that “a good case can be made for a stimulus of around […] US $ 2 trillion over the next 12-18 months” designed to get the global economy moving again. He argues that channelling this money into a green investment plan would provide this much needed fiscal stimulus as well as “high social return” at a time when morale is low and confidence needs to be restored. It is particularly important that we act immediately since as climate change worsens the cost of preventing further damage rises dramatically.

Stern commented: “Failure to seize this opportunity will mean that resources will be squandered, further cementing our economies’ carbon dependence and leaving behind enormous financial and environmental debts for future generations to pay off.”

Stern has often been accused of painting an unreasonably bleak view of environmental decline in the past but yesterday his tone was quite optimistic. The response will have to be immediate but will not be as costly as many think. To stand a chance of meeting the EU target for stabilising climate change by 2050 and preventing a rise of more than 2°C, a financial commitment of 2% of global GDP every year will be required. Such an investment could reduce world carbon emissions to 50% of their 1990 level, which would involve at least an 80% decrease in the emissions of developed countries. The details of the green recovery plan are to be finalised at the 2009 United Nations Climate Change conference in Copenhagen.

When asked about his hopes for the G20 summit Stern responded “With only a few hours and 22 leaders you can’t expect the details of the investment plan to be decided. What we can expect is a strong sense of direction. We needed to see a united front against protectionism – which includes ‘green protectionism’.”

An 80% reduction in the emissions of developed countries may sound very large but Lord Stern thinks this is possible and anticipates radical change. He spoke of a ‘third industrial revolution’ led by those in the developed world based on investment in green technologies.

This G20 conference needs to be decisive given the scale of the problems the world currently faces. President Sarkozy has already threatened to walk out if the conference produces “false success with language but contains no commitments.” A sense of direction needs to be established on Thursday so that plans for environmental reform can be successfully enacted in Copenhagen. The world is starting to wake up to the scale of the environmental problem; we’re unlikely to be convinced by “false success with language” now the stakes are so high.

One comment

  1. ‘Inaction will be more costly than action’ … Maybe somebody should tell this to Obama, the king of rhetoric without action.
    The solution to climate change will come from the market. It is no coincidence that the suppossedly ‘evil’ corporate giants Shell have already built the first hydrogen fuel station in America and the multinational corporations have invested more time and money into a cleaner energy economy than all the governments of the world combined. Our hope lies with scientists and researchers into new fuels, not with politicians that Lord Stern clearly has too much faith in.

    Undoubtedly governments have a role, and the recent experience with banks proves this, but banking is a very different industry suffering from information asymmetry and moral hazard that crucially the energy industry doesn’t. Therefore we should be looking for a modern day James Watts, not a modern day JFK to change the world. Lord Stern has yet to learn this.

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