Power Marketplace’s public service journalism 💙 Give Now

Paying the price for climate change

Marketplace Staff Sep 16, 2009

Paying the price for climate change

Marketplace Staff Sep 16, 2009


Kai Ryssdal: There’s going to be big climate-change meeting in New York on Tuesday. President Obama will be there, as will other world leaders. They’re trying to break a deadlock between rich and poor countries on who’s going to do how much to cut back on greenhouse-gas emissions. And who’s going to pay for it.

Three years ago Nicholas Stern wrote the study on the economic costs of climate change and of doing nothing. Then he was working for the British chancellor of the exchequer, their Treasury Department. Now he runs the Grantham Institute for Climate Change and the Environment at the London School of Economics. Professor Stern, good to have you with us.

NICHOLAS STERN: Pleasure to talk to you.

Ryssdal: If we decided right now that we were going to pay whatever it to took to keep global temperatures within the limits that scientists say we ought to do to avoid the worst of global warming. How much would that cost?

STERN: Over the next two or three decades it might cost 1 or 2 percent of world GDP, that’s like a one off a 1 or 2 percent increase in a cost index. But in thinking of that we also have to think of not only the reduction in risks associated with global warming, but we’re going to spark off a process of growth and change, which will be as exciting and productive and creative probably more so than the railways and electricity in earlier periods of economic history.

Ryssdal: To get it in dollar terms, 1 or 2 percent of global gross domestic product is what? A trillion dollars maybe?

STERN: In the U.S. it would be roughly that. But as I said, this is investment, and investment that will yield huge job and investment opportunities.

Ryssdal: Let’s say we choose not to make that investment, though, and see what happens with climate change. What would the cost of adaption be?

STERN: It could be anything from 5 to 20 percent of GDP averaged over a long period of time. But some of these things will be almost impossible to adapt to. The basic science suggests that sometime at the beginning of next century with unmanaged climate change, we’d be 5 degrees centigrade, 9 degrees farenheit, above the middle of the 19th century. The world has not been there for 30 million years. We humans have been around for 200,00. It’s dramatic, and it’s not easy to put that in dollars and cents. But it would far outweigh these relevantly minor 1 or 2 percent of GDPs in heading off climate change.

Ryssdal: How do you explain then the gap between the economic and scientific evidence that you and others have provided, and the lack of political will to spend that 1 or 2 percent of GDP right now.

STERN: I think that the political will around the world has changed quite dramatically in the last two or three years. But it has to go further and faster.

Ryssdal: What is government’s role in spearheading some of these innovations, in getting them started?

STERN: Well, the investments that matter are spurred by incentives. And the market fails because it doesn’t face people with the costs of the greenhouse gases they emit. We want markets to work well. So a carbon tax, or a cap and trade scheme, as being discussed in the U.S., fix the market which would otherwise fail. They give the incentives. And it’s going to be governments that fix that market failure and make markets work better. It’s government that will set regulatory standards, for motor vehicles and so on. So the investments which will be made by ordinary people and firms will be shaped by the government’s policy, and it’s vital that private industry investors get together with government and work out what the best kind of incentive structures are going to be to make those investments which are coming through, come through still faster.

Ryssdal: Nicholas Stern is a professor at the London School of Economics. He’s also the author of a landmark 2006 British study on the economics of climate change. It’s called the “Stern Review.” Mr. Stern, thanks so much for your time.

STERN: A pleasure being with you. Thank you.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.