A Blueprint for a Safer Planet
Bodley Head, 2009
Climate change is, Nicholas Stern argues, the biggest example of market failure we will ever see. If you thought government bail-outs were giving financiers an easy way out, look at the free ride we have been given over our climate-killing consumption patterns. “When we emit greenhouse gases, we damage the prospects for others and, unless appropriate policy is in place, we do not bear the costs of the damage,” Stern writes in his new book, A Blueprint for a Safer Planet. “Markets then fail in the sense that their main coordinating mechanism — prices — give the wrong signals.”
In a free market, no one gets charged for producing carbon. The resulting costs — catastrophic changes to the earth’s climate — are felt too late for the market to correct the error. Carbon dioxide has a deadly but cumulative effect, changing the climate over many years, irreversibly; already, stocks of emissions entering the atmosphere may mean sea levels will rise in a few decades.
But Stern — a former World Bank chief economist and United Kingdom government adviser who began studying climate change in 2005 — is no revolutionary. His answer is not to scrap the markets, but to reform them, to take into account the effects of carbon emissions. He advocates “fixing market failure — that is, enabling markets to work better”, for which his chosen methods are carbon trading, taxes and regulations enforcing minimum efficiency standards. Implementing these measures will even lead, he promises, to more jobs and prosperity, in a low-carbon economy. His book is carefully timed: this year, the world’s governments are locked in negotiations to forge a new treaty on emissions, to succeed the 1997 Kyoto Protocol, whose main provisions expire in 2012.
Stern, like Al Gore, could be seen as one of the rock stars of global warming thanks to his 2006 landmark study of the economics of climate change, the Stern Review. Commissioned by Gordon Brown, the study concluded that the costs of taking urgent action on emissions would be far lower than the costs of the damage caused by failing to act, or of acting too slowly. It was a seminal work, which set out conclusively both the costs and benefits of protecting the climate. Almost every significant discussion of climate change since has drawn heavily on its findings.
Since its publication, Stern, who is now back in academia as a professor at the London School of Economics, has followed a relentless programme with presidents, prime ministers and business leaders all seeking his advice. Waiting to interview him at an environmental conference, I had to stand by while star-struck groups of teenagers clamoured to be photographed with him.
This book covers some of the same ground as the review, and in 209 closely argued pages provides a handy recap of the main points for those who omitted to plough through the 700 pages of the original.
In addition, though, Stern answers the critics of the review — chiefly those who took issue with his choice of discount rate. The Stern Review departed from usual economic practice by assuming that future generations would find the same value in a stable climate as we do (normally, economists discount the value of future benefits relative to benefits today). Stern’s defence merits reading for its insight into the almost theological arguments that dominate climate-change economics in theory — arguments which, Stern makes clear, can have an unwholesome effect on economics in practice.
Stern’s prescriptions for a low-carbon future include putting a price on carbon, investing in renewable energy, and providing funding for poor countries to keep their forests intact; these will come as little surprise to students of climate change, but provide a useful summary for newcomers. Other sections, such as the one on changes to current forms of carbon financing, will be strictly for the nerds. And there are omissions – that he barely mentions the looming population crisis and its role in climate change, poverty and hunger is disappointing. But if this year’s crucial climate-change negotiations are to be successful, this book will be required reading for all participants.
Perhaps the experience of bailing out the banks will persuade them that an early market intervention for the climate may avoid an even more disastrous bust in future.
Fiona Harvey is the Financial Times environment correspondent.
Copyright The Financial Times Limited 2009