The economics of stabilisation

Part III
The Economics of Stabilisation

Part III of the Review considers the economic challenges of achieving stabilisation of
greenhouse gases in the atmosphere.

‘Business as usual’ emissions will take greenhouse gas concentrations and global
temperatures way beyond the range of human experience. In the absence of action,
the stock of greenhouse gases in the atmosphere could more than treble by the end
of the century.

Stabilisation of concentrations will require deep emissions cuts of at least 25% by
2050, and ultimately to less than one-fifth of today’s levels. The costs of achieving
this will depend on a number of factors, particularly progress in bringing down the
costs of technologies. Overall costs are estimated at around 1% of GDP for
stabilisation levels between 500-550ppm CO2e.

The costs will not be evenly felt – some carbon-intensive sectors will suffer, while for
others, climate change policy will create opportunities. Climate change policies may
also have wider benefits where they can be designed in a way that also meets other
goals.

Comparing the costs and benefits of action clearly shows that the benefits of strong,
early action on climate change outweigh the costs. The current evidence suggests
aiming for stabilisation somewhere within the range 450-550ppm CO2e. Ignoring
climate change will eventually damage economic growth; tackling climate change is
the pro-growth strategy.

Part III is structured as follows:
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Chapter 7 discusses the past drivers of global emissions growth, and how these
are likely to evolve in the future.

Chapter 8 explains what needs to happen to emissions in order to stabilise
greenhouse-gas concentrations in the atmosphere, and the range of trajectories
available to achieve this.

Chapter 9 discusses how to identify the costs of mitigation, and looks at a
resource-based approach to calculating global costs.

Chapter 10 compares modelling approaches to calculating costs, and looks at
how policy choices may influence cost.

Chapter 11 considers how climate change policies may affect competitiveness if
they are not applied evenly worldwide.

Chapter 12 looks at how to take advantage of the opportunities and wider
benefits arising from action on climate change.

Chapter 13 brings together the analysis of costs and benefits, and looks at how a
global long-term goal for climate change policy can be defined.
STERN REVIEW: The Economics of Climate Change
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Part III: The Economics of Stabilisation

Projecting the Growth of Greenhouse-Gas Emissions
Key Messages

Greenhouse-gas concentrations in the atmosphere now stand at around 430ppm CO2
equivalent, compared with only 280ppm before the Industrial Revolution. The stock is rising,
driven by increasing emissions from human activities, including energy generation and land-use
change.

Emissions have been driven by economic development. CO2 emissions per head have been
strongly correlated with GDP per head across time and countries. North America and Europe
have produced around 70% of CO2 emissions from energy production since 1850, while
developing countries – non-Annex 1 parties under the Kyoto Protocol – account for less than one
quarter of cumulative emissions.

Annual emissions are still rising. Emissions of carbon dioxide, which accounts for the largest
share of greenhouse gases, grew at an average annual rate of around 2½% between 1950 and
2000. In 2000, emissions of all greenhouse gases were around 42GtCO2e, increasing
concentrations at a rate of about 2.7ppm CO2e per year.

Without action to combat climate change, atmospheric concentrations of greenhouse
gases will continue to rise. In a plausible ‘business as usual’ scenario, they will reach 550ppm
CO2e by 2035, then increasing at 4½ppm per year and still accelerating.

Most future emissions growth will come from today’s developing countries, because of
more rapid population and GDP growth than developed countries, and an increasing share
of energy-intensive industries. The non-Annex 1 parties are likely to account for over three
quarters of the increase in energy-related CO2 emissions between 2004 and 2030, according to
the International Energy Agency, with China alone accounting for over one third of the increase.

Total emissions are likely to increase more rapidly than emissions per head, as global
population growth is likely to remain positive at least to 2050.

The relationship between economic growth and development and CO2emissions growth is
not immutable. There are examples where changes in energy technologies, the structure of
economies and the pattern of demand have reduced the responsiveness of emissions to income
growth, particularly in the richest countries. Strong, deliberate policy choices will be needed,
however, to decarbonise both developed and developing countries on the scale required for
climate stabilisation.

Increasing scarcity of fossil fuels alone will not stop emissions growth in time. The stocks
of hydrocarbons that are profitable to extract (under current policies) are more than
enough to take the world to levels of CO2 concentrations well beyond 750ppm, with very
dangerous consequences for climate-change impacts. Indeed, with business as usual,
energy users are likely to switch towards more carbon-intensive coal, oil shales and synfuels,
tending to increase rates of emissions growth. It is important to redirect energy-sector research,
development and investment away from these sources towards low-carbon technologies.

Extensive carbon capture and storage would allow some continued use of fossil fuels, and
help guard against the risk of fossil fuel prices falling in response to global climate-change policy,
undermining its effectiv